LONDON (Reuters) –
1/COUNTING THE ECONOMIC TOLL
The coronavirus continues to claim lives, yet the impact on global demand and companies is just starting to be felt. Recent days have seen an unremitting flow of dire headlines as supply chains from New Zealand to the United States felt the impact of a paralyzed China.
Toyota and Honda are suspending production in China, Hyundai has halted work in South Korea, airlines are grounding flights and reducing staff, and central banks are easing policy.
China’s 2020 growth estimates have been slashed as much as a percentage point from the 6% initially expected. Workers began trickling back to offices and factories on Monday around China after an extended Lunar New Year holiday.
Some financial markets were quick to recover: Wall Street climbed to records, encouraged by earnings and economic data. Chinese stocks, which lost $700 billion of market value on reopening after Lunar New Year holidays, had clawed back half those losses by last week. Yet commodity prices such as copper and oil, seen by many as a better signal for the real economy, still have some way to recover.
Investors waiting to get a readout of the economic toll may have to be a bit more patient. Monetary indicators in China scheduled for release over coming days are expected to show some effects of the central bank’s efforts to support suffering firms. Data on inflation at the factory-gate out on Monday snapped their six months deflation spell, while the consumer price index rose more than forecast, by 5.4%.
But retail sales and industrial activity will only be published in March, while trade data due out for release on Feb. 7 has been postponed.
-UPDATE 2-China’s producer prices break deflation spell but coronavirus risks grow
-China drafts banks, brokerages and funds into war on virus
-Dozens of Asia trade fairs, conferences postponed amid coronavirus fears
-GRAPHIC-Coronavirus impact on financial markets and economies
-FACTBOX-Carmakers close Chinese factories because of coronavirus
China GDP by province – tmsnrt.rs/3747Gb7
2/“DON’T FEAR THE REPO”
That, in all likelihood, will be one of the main messages Federal Reserve Chair Jerome Powell seeks to deliver to U.S. lawmakers in two days of testimony on Capitol Hill. Given Powell and his Fed crew have been consistent in recent messaging that there is no hurry to resume rate cuts (or hikes) and that they see the economy in “a good place” one topic that might generate fireworks in his appearances on Tuesday and Wednesday is “repo”.
A band of Democrats from the Senate Banking Committee, where Powell heads on Wednesday, has already sent him a list of questions about last autumn’s upheaval in the repurchase agreement market, where banks go to secure funding to meet their reserve requirements. The episode – when a cash squeeze drove overnight repo interest rates to 10% – forced the Fed back into the active bond-buying business for the first time in some five years and it scooped up more than $300 billion of T-bills since.
The Fed has also become the lender of first resort in the repo market, pumping tens of billions of dollars each day into money markets to ensure liquidity and avoid another squeeze.
Policy-makers believe the repo riot was triggered by having allowed bank reserve levels to fall too low in the roughly two years it had been letting the stash of bonds on its balance sheet dwindle. Reserves are on the upswing again, but just where the sweet spot in reserve levels lies is the big unknown, and Powell will be pressed for answers.
-UPDATE 1-Quarles says Fed could better align Treasuries, reserves to ease repo pressure
-Senate Democrats ask Fed’s Powell about repo market ahead of hearing
-TAKE A LOOK-Outlook for Federal Reserve policy
Bank reserves held at the Fed – tmsnrt.rs/2S8ws5L
3/EUROPE’S TURNING POINT
European stock markets have already put in a stellar performance in 2020 with many indexes hitting record highs in recent days. With the results season underway, Stoxx 600 companies are seen reporting 1.2% earnings growth in the fourth quarter, according to IBES Refinitiv, marking the end of a nine-month corporate recession in Europe.
Now it is time to see if GDP readings due out provide any hints of those “green shoots” detected in the recent European PMI readings, which spurred hopes that a long slump in the region’s manufacturing sector could also be bottoming out.
In Britain, recent PMI readings showed a post-election economy bounce in January as services companies enjoyed the strongest influx of new orders since mid-2018. December GDP data, due on Tuesday, is expected to come in at 0.8% in Q4 year-on-year after 1.1% in Q3.
On the continent, flash data out on Friday is expected to show that year-on-year GDP growth across the bloc remained at 1.0% in the fourth quarter, while expansion in Germany is predicted to cool to 0.4% year-in-year from 0.5% in Q3.
Though with potential supply chain disruptions in the wake of the coronavirus outbreak, there could be some new headaches waiting just around the corner.
-Euro zone factories still struggling but green shoots emerging -PMI
-UK economy’s post-election rebound strengthens in January -PMI
-POLL-Trade and Brexit deals could push European stocks to record highs
-POLL-Not much potential to unleash in London’s FTSE
Global manufacturing PMI – tmsnrt.rs/31kN8d7
HAPPY VALENTINE’S DAY FILINGS, TESLA WATCHERS!
The end of the week will see a flurry of filings from investment firms as the deadline for 13F forms for the quarterly period ending Dec. 31 falls on Feb. 14. Investment firms that hold more than $100 million in securities are required to file and disclose their holdings in equity securities and other products, according to the SEC website.
One of the hot stocks to watch out for is electric vehicle maker Tesla, which has seen a spectacular rally of nearly 80% this year. Tesla has been revving up markets as investors bet on Chief Executive Elon Musk’s vision, and on the future for electric vehicles.
So who’s on and who’s off the big Tesla rollercoaster? Up to now, the biggest institutional shareholders are Baillie Gifford, Capital World and Vanguard, while its top three hedge fund investors are Renaissance Technologies, Gilder Gagnon Howe & Co and Citadel, according to Refinitiv data. One seller in the quarter was Saudi Arabia’s public investment fund, according to a recent filing.
-Tesla’s surge inspires fans to buy, skeptics to dig in, drives fear of missing out
-Tesla rally fueled by fear of missing out, not short squeeze – investor
-UPDATE 2-Tesla tumbles 17% as electrifying rally loses power
-Saudi Arabia’s Public Investment Fund Cuts Share Stake In Tesla To 39,151 Shares From 8.3 Mln Shares
Tesla’s largest shareholders – tmsnrt.rs/2Ozi989
Tesla’s largest hedge fund investors – tmsnrt.rs/37aMmAU
5/CENTRAL BANKING IN THE TIME OF CORONA
A clutch of central banks are set to meet in days to come as the death toll from the deadly virus outbreak has crossed the 600 mark while analysts are still counting the costs to the global economy.
While major global central banks including the Fed and the Reserve Bank of Australia have warned of a significant hit from the virus to economic output in recent days, they have stopped short of loosening monetary policy outright.
But not so their emerging market counterparts. Both Philippines and Thailand cut interest rates unexpectedly this week while Singapore, which controls policy via its currency, said its local dollar has more room to weaken.
Emerging market central banks have more reason to fear the impact of the dreaded virus. China now accounts for a third of global growth compared to only 10% during the SARS epidemic, and the economies with the strongest trade ties with Beijing are feeling the heat.
With multiple channels of exposure including trade, tourism and services, central banks from Sweden to Indonesia will have plenty of food for thought when policy-makers meet in the coming weeks.
-Singapore says currency has room to weaken as virus hits economy
-Thai central bank unexpectedly cuts rate 25 bps to record low 1.0%
-GRAPHIC-Lower and lower: Emerging central banks cut rates for 12th month
EM central banks are in easing mode – tmsnrt.rs/2VtMo1c
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