Tag: finance

For Amazon’s dominant cloud-computing platform AWS, winning a $10 billion contract to overhaul the IT systems of the American military seemed like a walk in the park. Their clear dominance in the field would make Amazon’s competitors’ for the contract into guaranteed also-rans. This would be a breeze. A layup. A cinch.

Unfortunately, that’s not quite how it all went down. And now Amazon is throwing the equivalent of a corporate temper tantrum as it seeks to ‘rectify’ the DoJ’s decision, which it maintains was made for political reasons (given Trump’s well-known beef with Washington Post owner and Amazon founder Jeff Bezos).

In court documents unsealed on Monday, Amazon revealed that it wants to depose President Trump, Defense Secretary Esper and former Defense Secretary James Mattis as part of its case protesting the contract.

NEW: Amazon says it wants to depose President Trump and Defense Secretary Esper as part of its JEDI contracting protest, according to documents unsealed in court today.

Amazon also says it wants to depose former Defense Secretary Mattis.

— Brian Fung (@b_fung) February 10, 2020

Amazon recognizes that deposing a president might present “unique circumstances,” but its lawyers are clearly focused on trying to uncover evidence that Trump personally intervened in the awarding of the contract, using his influence to sway it toward Microsoft, which, ironically, was argued to be the less political pick by lawmakers who opposed the Amazon bid.

Here are the topics AWS wants to cover in the deposition of Trump. See the footnote: “AWS recognizes that a deposition of a sitting President of the United States presents unique circumstances…” pic.twitter.com/YBAQbHMqhU

— Brian Fung (@b_fung) February 10, 2020

Trump and his two defense secretaries are among seven people that Amazon wishes to depose as part of its lawyers’ discovery efforts.

“While other individuals can testify about specific conversations he had with them individually, President Trump is the only individual who can testify about the totality of his conversations and the overall message he conveyed,” according to the filings. “Morover, President Trump has unique knowledge about whether he had other, previously undisclosed conversations with individuals not previously identified, and who therefore do not appear on the deposition list.”

In a statement to CNBC, Amazon said “the preservation of public confidence in the nation’s procurement process requires discovery and supplementation of the administrative record…”

“President Trump has repeatedly demonstrated his willingness to use his position as President and Commander in Chief to interfere with government functions – including federal procurements – to advance his personal agenda. The preservation of public confidence in the nation’s procurement process requires discovery and supplementation of the administrative record, particularly in light of President Trump’s order to ‘screw Amazon.’ The question is whether the President of the United States should be allowed to use the budget of the DoD to pursue his own personal and political ends.”

The White House declined to comment to CNBC, and the White House reportedly refused to comment, as did the DoJ.

Following last night’s confusion whether the world’s largest electronics maker, Taiwan’s Foxconn, would resume operation at its Zhengzhou and Shenzhen plants, with Reuters stating the iPhone producer had been allowed to return to work to its Zhengzhou plant sending futures to overnight highs, even as the Nikkei countered shortly after that that was not the case, moments ago Reuters once again chimed in, reporting that in addition to approval to restore operations at its main plant in Zhengzhou, which employs over 350,000 workers and makes half the world’s iPhones, Foxconn has also received approval to resume partial production at its Shenzhen plant:

• FOXCONN HAS RECEIVED APPROVAL TO RESUME PARTIAL PRODUCTION FOR KEY PLANT IN CHINESE SOUTHERN CITY OF SHENZHEN ON TUESDAY – SOURCE WITH DIRECT KNOWLDEGE: RTRS

The two factories together make up the bulk of Foxconn’s assembly lines for Apple’s iPhones, and the delays are likely to impact global shipments. Ahead of the news, market research firm Trendforce on Monday cut its March-quarter forecast for iPhone production by about 10% to 41 million handsets.

That said, it wasn’t necessarily clear what “resuming production” actually means, because in a separately headline, Reuters said that only about 10% of the workforce had returned to Shenzhen (it was unclear what percetnage of Zhenghou workers had returned):

• ABOUT 10% OF WORKFORCE HAS RETURNED TO FOXCONN’S PLANT IN SHENZHEN AS OF MONDAY-SOURCE WITH DIRECT KNOWLEDGE: RTRS

Similarly, under 10% of Foxconn’s workforce in Zhengzhou had returned to the plant, the Reuters source said, adding that company executives were trying very hard to negotiate with authorities to resume production in other parts of China, including Kunshan, in southeastern Jiangsu province.

Lack of details aside, the government’s permission for Foxconn to resume production and thus keep supply chains alive was quickly interpreted by the market as a stamp of confidence by Beijing that it would contain the virus. As for the return of just 10% of workers to the factory, Rabobank’s Michael Every put it best: “it was enough to fool the algos, but not enough to mean much to supply chains.” Then again, fooling the algos is all that matters and the Emini is now trading at session highs and rapidly approaching its all time highs:

A similar dynamic was observed earlier in Tesla shares which soared as much as 8% in early trading after the electric-car maker resumed production at its China factory with the help of the Shanghai government. As Bloomberg notes, Shanghai government officials said during a briefing Saturday that it would make all efforts to help key companies including Tesla return to normal production. Tesla shares lost some steam toward the end of last week after analysts at RBC Capital Markets and Canaccord Genuity warned that the shutdown of the factory posed risk to its business plans, including a target for at least 500,000 vehicle deliveries in 2020.

Automakers including Volkswagen, Toyota Motor Corp. and Honda Motor Co.have meanwhile extended shutdowns, with several of their China factories now scheduled to resume production no sooner than Feb. 17.

The Department of Justice has charged four Chinese military hackers with breaching the computer networks of the Equifax credit reporting agency – accessing the personal information of tens of millions of Americans.

In addition, the four are accused of stealing Equifax trade secrets, according to the Associated Press.

“This was a deliberate and sweeping intrusion into the private information of the American people,” said Attorney General William Barr in a statement, adding “Today, we hold PLA hackers accountable for their criminal actions, and we remind the Chinese government that we have the capability to remove the Internet’s cloak of anonymity and find the hackers that nation repeatedly deploys against us.”

The case comes as the Trump administration has warned against what it sees as the growing political and economic influence of China, and efforts by Beijing to collect data on Americans and steal scientific research and innovation. -AP

This is far from the first time the DOJ has targeted Chinese hackers. Last year, two Chinese hackers were indicted for their alleged involvement in a global hacking campaign carried out at the behest of the Tianjin office of China’s Ministry of State Security (MSS) – targeting 45 US tech companies and government agencies.  The behavior allegedly happened over two time periods, one of which began in 2006, and the other beginning in 2014.

Hackers would infiltrate the cloud computing networks of ‘managed service providers’, then ‘hop’ from network to network’, gaining entree to the networks of these firms’ clients. In December, the US named some of the hackers suspected of working with the group known as “Advanced Persistent Threat 10” (APT10).

Networks targeted included NASA’s Jet Propulsion Lab, the Department of Energy’s National Laboratory, and the US Navy.

An investigation by Reuters found that “Cloud Hopper” impacted six additional firms aside from IBM and HPE, which it had previously reported. These included at least five of the world’s 10 largest tech service firms. In addition to HPE and IBM, the hacks emanated out to those firms’ clients, including Swedish telecoms firm Ericsson, and a handful of Japanese fims.

We knew something was off a few days ago when China’s National Health Commission reported that the number of people receiving medical attention over the Coronavirus unexpectedly peaked after rising at roughly 15,000-20,000 each day, and flatlined ever since, even posting three days of declines in the past week.

The sense that China was manipulating the data only grew overnight when according to the latest NHC data, the number of suspected coronavirus cases suddenly plunged by more than 5,000 to 23,589 from 28,942 the day before.

All of this emerged even as China reported a welcome, if suspicious tapering in the number of new cases, which had plateaued at just over 3,000 (a number which Dr. Scott Gottlieb was not indicative of the actual infection spread but merely China’s ability to conduct at most 3,000 successful tests per day) and have since been declining.

In retrospect it turns out that China indeed “took steps” to demonstrate to the world that it was winning the war against the coronavirus. And since it wasn’t doing so in the real world, it decided to do so by engaging in the oldest trick in the Chinese book: by moving the goal posts and changing the definition of what an “infection” means.

As reported by local media this morning, the Chinese National Health Commission quietly changed its definition of Coronavirus “confirmed case” in the latest guideline dated 7/2. As a result, going forward patients who tested positive for the virus but have no symptoms will no longer be regarded as confirmed. As Alex Lam observes, “this inevitably will lower the numbers.”

Chinese National Health Commission has changed their definition of #WuhanCoronavirus “confirmed case” in their latest guidelines dated 7/2. Patients tested positive for the virus but have no symptoms will no longer be regarded as confirmed. This inevitably will lower the numbers. pic.twitter.com/q4eWKGfWev

— Alex Lam 林偉聰 (@lwcalex) February 10, 2020

As Apple Daily reports, in the latest, fourth edition of the NHC protocol, “mild” is classified as “confirmed cases” but “asymptomatic infected persons” is defined as “persons with no clinical symptoms, respiratory tract specimens, etc. who are positive for new coronavirus pathogenic tests.” As a result, “asymptomatic infection” no longer counts as confirmed cases.

Conveniently, the new rule has triggered provinces “to find cases that can be deducted from the total number of confirmed cases.” For example, Heilongjiang has axed 13 cases from their tally stating the new definition. Hubei has deducted 87 cases today, but authorities did not explain why.”

In total, over 100 cases have been deducted from the running “confirmed case” total over the past 2 days, while also impacting the number of suspected cases. The concerning problem, however, is that authorities do not disclose the number of symptom-less infected patients after they count them separately, and as Alex Lam cautions, “there will be no way of knowing the exact magnitude of the outbreak.”

This, of course, is a problem because as a recent article written by a team led by Dr. Zhong Nanshan, suggested the WuhanCoronavirus can be transmitted by infected patients even they without them showing symptoms, which is what makes the virus so infectious, as “sick people could be spreading it without knowing.”

One final note: China’s bizarre change in definition conflicts with that of the WHO itself which put out an interim guidance on the Wuhan Coronavirus last month, when it present a definition for Confirmed Case: “person with laboratory confirmation irrespective of clinical signs and symptoms. It is very clear. “

@WHO has put out an interim guidance on #WuhanCoronavirus surveillance last month and it has a definition for Confirmed Case: person with laboratory confirmation irrespective of clinical signs and symptoms. It is very clear. https://t.co/8VSCnEuFTS pic.twitter.com/cdU3DUxRBo

— Alex Lam 林偉聰 (@lwcalex) February 10, 2020

This shocking “change in definition” of a coronavirus infection naturally prompts the question: just how is China gaming the other infection data to make the disease appear more contained, and more manageable, and can one even remotely trust the official coronavirus numbers published by the National Health Commission?

Authored by Richard Breslow via Bloomberg,

After some-start-of-session dramatics, markets have settled down to mostly quiet and mildly cautious price action. And this befits the situation. Traders are finally willing to accept that no one really has a clue in which way, and on what time schedule, this virus will continue to dominate events in the real world and in the financial markets. Admitting that fact is an important step in helping traders deal with it.

There is nothing that will stop algorithms and day traders from reacting to headlines. It’s what they do. But we are certainly not at the stage where it’s anything but folly to think that what we learn from them will settle the issue of where things, and markets, are heading. Certainly on a lasting basis. Alternating between progress and set-backs is the nature of events such as these. And even if they were at the height of their powers, central banks can keep the financial plumbing functioning, but they can’t solve the underlying problem.

While it makes perfect sense for the PBOC to react as they have and settle down their domestic markets, it isn’t at all clear that some broad brush coordinated global monetary policy response will do a whole lot of good. Something far more targeted needs to be tried. But that may be wishful thinking.

If you look at the overall level of the major equity indexes, it’s easy to be surprised at how well they have held up. And how quickly traders were willing to buy the dip. But this continues to be a market with big winners and big losers. Until we get more evidence on whether the affect on the economy will be lasting, preemptive cuts will only exacerbate the situation. If you are exposed to China, you’ll under-perform. If you are a big, defensive stock it will be off to the races. It’s unclear how that really helps matters.

On the other hand, anything that keeps supply chains open would be unambiguously helpful. This isn’t the time to inflame trade wars. Nor the time to play good cop/bad cop with speeches. It’s not a situation where trickle-down strategies will do a lot of good. And if the concern is for the fragility of the entire financial system and its ability to withstand a recession, encouraging more risk-taking in credit-challenged companies and other pro-risk expressions isn’t going to make the financial, let alone real, world safer.

It appears, however, that many analysts can’t resist still having their base cases for how this all plays out. And for the most part, they tend toward some version of it ending with a global economic recovery. “V” or “U,” take your pick. I guess they can afford to be optimistic. It’s probably a better idea to see some evidence first.

I’m not sure any of the immediate economic data will be conclusive. Too much of it may have been rendered old. But by the end of the month, data will start coming in. Watch for any and all numbers having to do with trade. Especially those coming from Asia. In the interim, there will be news, like today’s, about a Foxconn plant being given permission to resume some production, that markets will react to.

Copper has been an important bellwether of market sentiment. It’s bouncing a bit today and trying to see if it can build a base from last Monday’s low. Well worth watching closely. The Bloomberg Commodity Index, despite a somewhat similar looking chart, looks less convinced. And convincing. But, it’s trying. Last week’s low matters because if it doesn’t hold, technical analysts will begin talking about the 2016 extreme. At least we have some good levels to key off of.

Ten-year Treasury yields are holding below the mid-point of their recent range. They really do need to bounce or we could be destined to take another look at the 1.50% level. Which is big. I really do want to hear from Fed Chair Jerome Powell and will be listening for any mention of the words, “yield curve control.” There may be other powerful forces at work here.

Following a series of reports in the German and broader European press claiming her imminent resignation, Annegret Kramp-Karrenbauer – better known as AKK – has confirmed that the rumors are indeed true. She will step down as the leader of Angela Merkel’s Christian Democratic Union, the center-right party that has ruled Germany for two decades, and won’t run as the party’s candidate to succeed Merkel during the federal election to pick Germany’s next chief executive in 2021.

AKK reportedly resigned in protest over flirtations by the party’s conservative wing to ally with Alternative für Deutschland, or the AfD, to achieve common political aims.

The centrists in the CDU, including Merkel herself, have denounced the AfD as a far-right borderline hate group populated by Nazi sympathizers. Meanwhile, AfD’s leaders have taken steps to expel Nazi sympathizers and others who might alienate the general German public.

AKK & Angela Merkel

This political fracture was recently exacerbated by CDU members in East Germany, the formerly Communist region where the AfD’s popularity is at its highest, who recently allied with AfD members to oust the left-wing premier of Thuringia. Merkel criticized the decision, which provoked general outrage throughout Germany.

Now, the FT says the race to succeed Merkel has been “thrown wide open.”

Not that this is that big of a surprise. We’ve been reporting on the increasingly strained relationship between AKK and her one-time political mentor for nearly a year, a feud that supposedly inspired Merkel’s decision to come out of retirement and once again play a more active role inside the CDU after handing the reins to AKK. Merkel now reportedly doubts AKK’s ability to lead Germany, as well as the CDU.

A series of gaffes and political missteps have also eroded AKK’s popularity over the last year. She has reportedly lost her status as a “shoo-in” for the chancellorship, according to the FT.

“Her mistakes just kept piling up,” said Olav Gutting, a CDU MP who is in the party’s governing council. “People like her a lot as a person, but the grass roots had growing doubts about her fitness for the highest office.”

Germany’s next national election is now expected to be a three-way race between Armin Laschet, prime minister of North Rhine-Westphalia, Germany’s most populous state, German Health Minister Jens Spahn and former CDU leader Friedrich Merz, a longtime conservative rival to Merkel, whose reign has been defined by a sense of pragmatic centrism.

Should Merz or Spahn prevail (both men are considered conservatives) it would mark a serious moment of transition not only for the CDU, but for Germany’s government as a whole. There are many within Germany who would like the CDU to return to its conservative roots and work more closely with AfD.

For now, at least, those voices appear to be winning out against Germany’s established political elite.

Submitted by Eleanor Creagh of Saxo Bank

Summary: Despite the buy the dip mentality that returned to markets last week, Fridays risk off price action seems a more accurate reflection of the current state of affairs. Dip buyers likely jumped the gun last week as the reported coronavirus death toll surpassed the SARS total over the weekend and contagion fears mount following a series of outbreaks in Europe linked to a large business conference in Singapore and additional new cases confirmed on the Princess Dream cruise ship docked off the coast of Japan. We expect price action to remain volatile and continue to be highly susceptible to virus related headlines, jumping from one to the next.

* * *

Over the weekend, new cases dropped in China, both in Hubei and outside Hubei. In the meantime, the global death toll increased to 910. Markets remain nervous as confirmed coronavirus infections outside of China mount and we think that risk-off price action will resurface. Downside risks are underpriced, most obviously so in Asia. Assessing the impact of the virus outbreak on global growth is no easy task, and as the human impact increases, so does the response and the economic impact. Singapore has now raised its alert level to Orange, the second highest level (same as the SARS outbreak). Companies continue to warn about the impact of ongoing disruption that will impact both sales and supply chains as factories, offices and shops remain closed and air travel is suspended, hitting both demand and supply.

This impact via the supply chain shock is likely to get worse before it gets better and that risk is not priced into equity markets. As the economic disruption prevails, the potential downwards revisions to growth and economic activity have the capacity to outweigh tentative green shoots, particularly across Asia and the Eurozone (via trade linkages with China). The German auto industry is heavily exposed to China and reports have surfaced that the factory shutdowns are making it hard to source key parts, notwithstanding the hit to sales. China accounts for about 40% of VW’s global passenger vehicle sales, and about 30% at Daimler and BMW. Wuhan and the rest of Hubei province, which has been on extended lockdown, account for 9% of total Chinese auto production, according to S&P Global Ratings. General Motors, Nissan, Renault, Honda and Peugeot owner PSA Group all have large factories in Wuhan. However, the reach extends far beyond the auto sector, from clothing and consumer goods to chemicals and tech, at some level inputs from China are crucial to most to major manufacturing supply chains around the world.

Globalisation has profoundly entwined supply chains, therefore shutdowns and production delays have the capacity to cause unexpected bottlenecks across many production lines even if the virus spread peaks soon. Most consumer electronics are made in China or at least have some component that is made in China, most notably iPhones, consumer gadgets, crystal displays, gaming consoles and LCD screens used in TVs, phones and cars. This leads us to believe that the current risk reward set up for equities generally is unfavourable and we favor defensive positioning and haven plays (gold, US rates). 

The week ahead will be crucial for gauging how long it will be before production returns to full capacity, the longer term ramifications of the virus outbreak and the hit to supply chains. Critical markers will be how much of the lockdown across China’s industrial centres can be wound back and how quickly. And whether the contagion risks outside of China continue to escalate or whether the virus will be contained soon.

At this stage the hit to the US economy should be minimal, but China has been hit hard. Although in China the increases in the number of new “reported” cases is slowing, the impact on the economy will continue to grow as the knock on effects from extended shutdowns multiply. The direct effects on foregone sales and supply chains will hit many companies bottom lines, notwithstanding the secondary effects yet to trickle down via lower commodity prices and the like. 3 provinces and 60 cities, almost 400 million people, are now facing some level of lockdown as Beijing tries to contain the coronavirus outbreak. True GDP in Q1 is likely to be close to 0 and potentially negative depending on how protracted the shutdowns become, with risks to forecasts tilted to the downside as the virus still continues to spread along with knock on effects. This shock hits the Chinese economy at a particularly vulnerable period, when longer term structural pressures continue to weigh and activity levels were already precarious as the tariffs and hangover from the deleveraging drive have taken their toll on economic activity. Growth, already under pressure, now has to contend with an unprecedented impact which outweighs that of the 2003 SARS outbreak. China’s policy responses have been stepped up over the past week with liquidity injections helping to allay some investors’ fears and lend support to equity markets. However, these increased policy response signal the authorities anxiety levels are rising, despite the state media awash with proclamations to the contrary.

It is not just the hit to growth that comes at a bad time for China. The ongoing trade war between the US and China already had companies pulling production out of China, diversifying their supply chains and shifting to other countries in the Asian region. The present disruptions add to that conversation and the decision to reduce production dependence concentrated in one specific country and diversify supply chains outside of China.

Amidst these lingering concerns, the US remains well bid. With this USD strength comes an additional hit to growth as the strong USD tightens financial conditions globally, particularly in offshore funding markets. The strong dollar hinders reflationary pulses and curtails green shoots therefore cementing the path for weaker economic growth, adding to the haven bid for long term bond yields.

As ever, this laundry list of concerns is countered by the ongoing return of central bank largesse. Monetary policy, as always, remains a powerful determinant of asset prices, continued central bank liquidity injections lends underlying support to equity markets. With liquidity being pumped and low yields forcing risk seeking behaviour, dip buyers are there on the sidelines ready to step in as valuations correct. Also, as investors re-calibrate long term interest rate expectations at current levels, large amounts of capital is enticed up the risk spectrum into equity markets. Monetary policymakers have already exhibited their willingness to intervene with added stimulus measures in an attempt to extend the cycle, so, for as long as investors feel like central banks have their back and policy rates remain low the longer term tailwinds for equities remain. Though as outlined above, we caution that the current risk reward set up for equities generally is unfavourable and see the potential for risk-off dynamics to resurface.

While investor attention remains fixed on the latest coronavirus developments in China, the week after payrolls is often a bit light for macro events but as DB’s Jim Reid notes, the second Democratic primary in New Hampshire tomorrow will be an additional focus. Meanwhile, attention will also be on Fed Chair Powell, who’ll be testifying before congressional committees on Tuesday and Wednesday. Data highlights include the release of US CPI (Thursday), US retail sales (Friday), and Q4 GDP readings from Germany (Friday) and the UK (tomorrow). Earnings season slows a bit but will still be important.

Going into the New Hampshire primary tomorrow, the RealClearPolitics polling average puts Bernie Sanders in the lead on 26.6%, ahead of Pete Buttigieg on 21.3%. It’s worth remembering that Sanders actually won the New Hampshire primary in 2016 against Hillary Clinton, and it also neighbors his home state of Vermont, which he represents in the US Senate.

Nationally the latest poll of polls still have Biden narrowly ahead of Sanders in the race for the nomination but most of the polls are prior to the middle of last week. The last one from Wednesday had Sanders 1pp ahead. In betting markets (PredictIt) Sanders has odds of 46% against Biden who has collapsed to 13% – down over 20pp over the last week.

Staying with the US, the main central bank highlight this week will come from Federal Reserve Chair Powell, who’ll be appearing before the House Financial Services Committee tomorrow, and then the Senate Banking Committee on Wednesday. He’ll deliver the Fed’s semi-annual monetary policy report to Congress, so it’ll be interesting to hear his latest views on the outlook (and the fallout from the Coronavirus) even if they are unlikely to deviate much from the last FOMC. Another event to watch out for on Thursday will be the hearing held by the Senate Banking Committee regarding the nomination of Judy Shelton and Christopher Waller to be governors on the Federal Reserve Board.

Turning to data releases, they will all be a little backward looking given the Coronavirus but will show the direction of travel pre-outbreak. In the US a key highlight will be CPI on Thursday, which is expected to increase to +2.5%, up from +2.3% previously, to what would be its highest level since October 2018. However, the core reading is expected to fall slightly to +2.2%. Other important readings to watch out for include January’s retail sales and industrial production releases on Friday, as well as the preliminary reading of the University of Michigan consumer sentiment index, which rose to an 8-month high in January.

One of the main highlights from Europe will be the preliminary estimate of German GDP for Q4 on Friday. The consensus is expecting a +0.1% increase, following the +0.1% growth in Q3. However it comes against the backdrop of unexpectedly poor German data out this week on factory orders as well as industrial production for December, so an important release to keep an eye out for. In terms of other GDP releases from Europe, tomorrow sees the preliminary Q4 GDP reading from the UK, which is expected to show a flat reading following growth of +0.4% in Q3. Finally, there’ll be the second release of GDP for the Euro Area on Friday, though this is expected to be in line with the first estimate, which saw the region’s economy expand by +0.1%.

Earnings season slows down (148 S&P 500 and Stoxx 600 companies) but in terms of what to look out for this week, Daimler will be reporting tomorrow, then on Wednesday, we’ll hear from Cisco Systems, CVS Health and CME Group. It’s a busy day on Thursday, with companies reporting including Nestle, PepsiCo, Nvidia, Airbus, Linde, Zurich Insurance Group, AIG, Barclays, Credit Suisse and Nissan. Then on Friday, we’ll hear from AstraZeneca, Credit Agricole, Royal Bank of Scotland.

We are now 64% of the way through the S&P 500 Q4 earnings season. 71% of companies are beating estimates which is slightly below the five-year average of 75%. In aggregate, companies are currently beating by +4.6% above the estimates, above the longer-run historical average rate (+3.4%) but below the five year average (+5.4%). According to DB, the decline in margins has been led by the Energy and Materials sector. This is likely a reflection of lower commodity prices, but the trend has been broad based with margins down across all sectors.

A day by day summary of the week’s key events

Monday

• Data: China January CPI, PPI, Bank of France January industry sentiment indicator, Italy December industrial production, Canada January housing starts, December building permits
• Central Banks: Fed’s Bowman, Daly and Harker speak

Tuesday

• Data: UK preliminary Q4 GDP, December industrial production, manufacturing production, trade balance, US January NFIB small business optimism index, December JOLTS job openings, Japan January M2 and M3 money stock
• Central Banks: Fed’s Powell, Quarles, Daly, Bullard and Kashkari, ECB’s Schnabel, BoE’s Haskel speak
• Earnings: Daimler
• Politics: New Hampshire primary in US

Wednesday

• Data: Japan preliminary January machine tool orders, Euro Area December industrial production, US weekly MBA mortgage applications, January monthly budget statement, Japan January PPI
• Central Banks: Fed’s Powell and Harker speak, monetary policy decisions from the Reserve Bank of New Zealand and the Riskbank
• Earnings: Cisco Systems, CVS Health, CME Group

Thursday

• Data: France Q4 unemployment rate, Germany final January CPI, US January CPI, core CPI, weekly initial jobless claims
• Central Banks: ECB’s Hernandez de Cos speaks, Senate Banking Committee holds hearing on the nomination of Judy Shelton and Christopher Waller to the Federal Reserve Board of Governors, Banco de Mexico policy decision
• Earnings: Nestle, PepsiCo, Nvidia, Airbus, Linde, Zurich Insurance Group, AIG, Barclays, Credit Suisse, Nissan

Friday

• Data: Japan December tertiary industry index, Germany preliminary Q4 GDP, Italy December trade balance, Euro Area December trade balance, preliminary Q4 GDP and employment, US January retail sales, industrial production, capacity utilisation, December business inventories, preliminary February University of Michigan sentiment, Canada January existing home sales
• Central Banks: BoJ’s Amamiya and Fed’s Mester speak

Finally, here is Goldman previewing the  of key US economic data releases this week which are the CPI report on Thursday and retail sales on Friday. There are several speaking engagements from Fed officials this week. Chair Powell will deliver his semiannual monetary policy report to Congress this week, with the first testimony occurring Tuesday and the second testimony Wednesday. Fed Board nominees Shelton and Waller will have their nomination hearings on Thursday.

Monday, February 10

• 08:15 AM Federal Reserve Governor Bowman (FOMC voter) speaks: Federal Reserve Governor Michelle Bowman will speak on community banking at an event in Orlando. Prepared text and audience Q&A are expected.
• 01:45 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will give a speech in Dublin. Prepared text and audience Q&A are expected.
• 03:15 PM Philadelphia Fed President Harker (FOMC voter) speaks: Philadelphia Fed President Patrick Harker will speak on the economic outlook at an event at the University of Delaware. Prepared text and audience Q&A are expected.

Tuesday, February 11

• 06:00 AM NFIB small business optimism, January (last 102.7);
• 06:00 AM San Francisco Fed President Daly (FOMC voter) speaks; San Francisco Fed President Mary Daly will participate in a moderated discussion at Trinity College, Dublin. Prepared text is not expected. Audience Q&A is expected.
• 10:00 AM JOLTS Job Openings, December (last 6,800k)
• 10:00 AM Federal Reserve Chairman Powell (FOMC voter) speaks; Federal Reserve Chairman Powell will give his semiannual monetary policy report to Congress in front of the House Financial Services Committee. Prepared text and questions from committee members are expected.
• 12:15 PM Federal Reserve Vice Chair for Supervision Quarles (FOMC voter) speaks; Federal Reserve Vice Chair for Supervision Quarles will give a speech on bank regulation at an event at Yale University. Prepared text and audience Q&A are expected.
• 01:30 PM St. Louis Fed President Bullard (FOMC non-voter) speaks; St. Louis Fed President James Bullard will speak on the economic and monetary policy outlook at an event in St. Louis. Prepared text and audience Q&A are expected.
• 02:15 PM Minneapolis Fed President Kashkari (FOMC voter) speaks; Minneapolis Fed President Neel Kashkari will participate in a town hall event in Kalispell, Montana. Audience Q&A is expected.

Wednesday, February 12

• 08:30 AM Philadelphia Fed President Harker (FOMC voter) speaks; Philadelphia Fed President Patrick Harker will speak on the economic outlook at an event in Malvern, Pennsylvania. Prepared text and audience Q&A are expected.
• 10:00 AM Federal Reserve Chairman Powell (FOMC voter) speaks; Federal Reserve Chairman Powell will give his semiannual monetary policy report to Congress in front of the Senate Banking Committee. Prepared text is expected.

Thursday, February 13

• 08:30 AM CPI (mom), January (GS +0.20%, consensus +0.2%, last +0.2%); Core CPI (mom), January (GS +0.24%, consensus +0.2%, last +0.1%); CPI (yoy), January (GS +2.50%, consensus +2.5%, last +2.3%); Core CPI (yoy), January (GS +2.26%, consensus +2.2%, last +2.3%): We estimate a 0.24% increase in January core CPI (mom sa), which would leave the year-on-year rate unchanged at 2.3%. Our monthly core inflation forecast reflects a post-holiday rebound in the household goods and personal care categories, a stabilization in used car prices, and a modest rebound in airfares and hotel lodging costs. We also expect a rebound in apparel prices reflecting residual seasonality. On the negative side, we look for softness in education inflation. We estimate a 0.20% increase in headline CPI (mom sa), reflecting lower energy prices but higher food prices.
• 08:30 AM Initial jobless claims, week ended February 8 (GS 210k, consensus 210k, last 202k); Continuing jobless claims, week ended February 1 (consensus 1,748k, last 1,751k): We estimate jobless claims rebounded to 210k in the week that ended February 8. We expect a persistent winter seasonal bias to continue to exert upward pressure on the continuing claims measure through February.
• 10:00 AM Federal Reserve Board nominees Shelton and Waller nomination hearings: Federal Reserve Board nominees Judy Shelton and Christopher Waller will give prepared testimony and answer questions from senators in a joint nomination hearing.
• 05:30 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will participate in a moderated discussion at an event hosted by the New York Bankers Association. Prepared text is not expected.

Friday, February 14

• 08:30 AM Retail sales, January (GS +0.3%, consensus +0.3%, last +0.3%); Retail sales ex-auto, January (GS +0.1%, consensus +0.3%, last +0.7%); Retail sales ex-auto & gas, January (GS +0.2%, consensus +0.3%, last +0.5%); Core retail sales, January (GS +0.1%, consensus +0.3%, last +0.1%): We estimate that core retail sales (ex-autos, gasoline, and building materials) edged higher by 0.1% in January (mom sa), reflecting softness in chain store sales and scope for normalization in eComerce sales following the holiday season. We also see a potential boost to food services from below-average snowfall. We estimate a 0.3% increase in the headline measure in this week’s report, reflecting a pullback in gas prices and a rebound in auto sales.
• 08:30 AM Import price index, January (consensus -0.2%, last +0.3%)
• 09:15 AM Industrial production, January (GS +0.1%, consensus -0.2%, last -0.3%); Manufacturing production, January (GS +0.3%, consensus flat, last +0.2%); Capacity utilization, January (GS 77.0%, consensus 76.8%, last 77.0%): We estimate industrial production rose modestly in January, reflecting a rebound in auto manufacturing but weakness in the utilities category. We estimate capacity utilization was flat in January at 77.0%.
• 10:00 AM University of Michigan consumer sentiment, February preliminary (GS 100.0, consensus 99.2, last 99.8): We expect University of Michigan consumer sentiment increased to 100.0 in the preliminary February reading, reflecting increases in other confidence measures.
• 10:00 AM Business inventories, December (consensus +0.1%, last -0.2%)
• 11:45 AM Cleveland Fed President Mester (FOMC voter) speaks: Cleveland Fed President Loretta Mester will speak at a financial literacy event in Sarasota, Florida. Prepared text and audience Q&A are expected.

Source: DB, Goldman

Submitted by Michael Every of Rabobank

“Hi-Ho!” Or “Uh-Hh!

So, Monday morning. February 10. And rather than worrying about Valentine’s Day plans, most people are still focused on coronavirus. (With the exception of those in America who are talking about the fact that the aptly-named ‘Parasite’ from South Korea won the coveted Best Picture Oscar. And, no, it doesn’t deal with viruses, rather the vast inequality in South Korean society.) Anyway, back to the virus, where the death total is now 910 vs. 3,352 recovered, so still one in four on that measure, which is fortunately going down slowly, albeit too high for comfort and now 40,536 cases.

Crucially for market quants who do not understand fat tail risks–as proven by their behaviour against this global backdrop–that means there is still no clear sign of a rapid drop-off in the total of new cases given that the last seven days reads as follows: 3,239; 3,927; 3,239; 3,163; 3,457; 2,676; 3,001 although in day-to-day percentage terms this does represent a slow-down. (Although also note that at this pace, just two-days’ worth of new cases are enough to fill a brand new hospital.) Not so much of a slowdown in being seen outside China, however, where we now have just shy of 400 cases, vs. virtually zero a few weeks ago. Yes, the numbers are low. Yes, the cases are milder. Yes, preparations are in place in many locations. However, that is close to an exponential trend, with 43 in Singapore, now on orange virus alert, 36 in Hong Kong, where panic buying and working from home are the norm, 15 in Australia, 14 in Germany, .12 in the US, and 11 in France, among others.

Underlining that this week is going to be crucial, Shanghai reported this weekend that they now assume the virus has aerosol transmission, meaning it is airborne, adding to food-borne, touch, and contact, and explain why it might be spreading through buildings in air-conditioning, etc. That remains unconfirmed, however. The WHO boss has also, for once, not been accentuating the positive, stating that what we have seen so far may be “the tip of the iceberg” given that we now have human-to-human transmission outside China. At the same time, the London School of Hygiene and Tropical Medicine, who might just know more about these kind of things than the average market analyst with their expertise on the suffering of “man flu”, models that at its peak later this month in China the coronavirus might infect 500,000 people in Wuhan alone. That is 5% of the population.

We have also seen at least one economist publicly state that China’s GDP growth will be 0% y/y in Q1, which seems optimistic to me if this is not resolved soon; and more concretely, an AmCham Shanghai Coronavirus survey reports the following: 87% of firms see a direct impact on them; 25% see revenues falling by 16% or more; 16% see China’s GDP falling more than 2% in 2020 as a result of the virus; 29% believe their corporate HQ does not sufficiently understand the full economic impact; and 60% are planning work-from-home policies.

Of course, for markets what matters most is one thing: did China go back to work today or not? Commodity markets, where force majeure is being called to cancel Chinese copper trades; bond markets, where we are still close to a Maginot Line of 1.50% in 10-year US Treasuries; equities, where we are obviously still close to (silly) record highs; and FX markets, will all be watching closely.

If it is truly “Hi-ho!” and off to work we go, as officially planned, then “all is well” – even if that means the virus might spread much faster and further. Yet if it doesn’t, then it is “Uh oh!” as the global supply-chain impact of a lack of key Chinese inputs is days or weeks away at most, with the pain varying by industry. So far the evidence is that has been more “Uh oh!” or “so so”. For example, there has been a particular fixation on whether the Foxconn factory that makes iPhones is able to open or not, with flip-flopping headlines. It seems that the latest news is that around 10% of workers returned today, perhaps enough to fool the algos, but not enough to mean much to supply chains.

Meanwhile, it is obviously also worth noting the “Hi-ho!” number from the US payrolls report on Friday, which was once again strong at 225K despite downward revisions to back data, and yet which saw the unemployment rate tick up to a still-low 3.6%. Asia is sneezing but the US is not *yet* catching a cold, even if we still believe it will go down with its own made-in-America flu later this year anyway. (At which point Asia will be relatively even more sickly, of course.)

In other data out today, China saw January PPI up 0.1% y/y, marking a bounce away from deflation just as the rest of the world appears headed for it. Moreover, it saw CPI spike to 5.4% y/y as food prices shot up over 20%. How does one see inflation moving in an economy where much of it is under lock and key, but where those parts that are in demand do not have enough supply? A very mixed, and ugly, picture of biting deflation AND inflation that economic models are not set up to assume. It certainly will not make the PBOC’s job any easier, even if it is clear that it will be throwing money at the economy ahead.

The Republic of Ireland experienced a political earthquake during its general election on Saturday with Sinn Féin topping the polls with 24.5 percent of the vote as of 12:00 pm on Monday. That’s ahead Fianna Fáil who have 22.18 percent and Fine Gael who have 20.86 percent.

As Statista’s Niall McCarthy notes, the Irish political system has been traditionally dominated by the latter two parties with Sinn Féin remaining on the periphery, particularly due to its links with the IRA during the Troubles. It has slowly become more mainstream and its performance in Saturday’s election was a major surprise.

You will find more infographics at Statista

Soaring rents, a major homeless crisis and long hospital waiting lists have resulted in voters opting for alternatives, fuelling its rise.

Fianna Fáil are still blamed for the financial crisis while Fianna Gael are being held accountable for current frustrations. Sinn Féin’s slow but steady rise can be seen clearly on the infographic above.

The republican-orientated party took 1.2 percent of the vote in the 1989 general election and by 2011 and 2016, it took 9.9 and 13.8 percent respectively. No party will win enough seats for an outright majority and Fine Gael and Fianna Fáil have both ruled out forming a coalition with Sinn Féin. Mary Lou McDonald, Sinn Féin’s leader, has said she is examining the possibility of forming a new government without Fine Gael and Fianna Fáil.