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Market Talk – February 14, 2020

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ASIA:

A meeting is being planned between US President Trump and Indian executives, especially those focusing on job creation and manufacturing in the United States, on February 25 when President Trump visits India.

Vodafone’s Indian business Vodafone Idea Ltd reported its sixth straight quarterly loss. Revenue fell 5.8% to 1.55 billion USD in the reported quarter. Vodafone Idea had reported a loss of 7.12 billion USD in the second quarter of 2019, the biggest loss ever by a company in Indian corporate history. The quarterly results come as Vodafone Idea and other Indian telecom firms are pressured by government demands to pay $13 billion in overdue levies in a long-contested dispute.

India has offered to partially open up its poultry and dairy markets in a bid for a limited trade deal during U.S. President Donald Trump’s first official visit to the country this month, people familiar with the protracted talks say. India, the world’s largest milk-producing nation, has traditionally restricted dairy imports to protect the livelihoods of 80 million rural households involved in the industry. But Prime Minister Narendra Modi is trying to pull all the stops for the US president’s Feb. 24-25 visit, aimed at rebuilding bonds between the world’s largest democracies.

Chinese Investment Bank China International Capital Corp. published a survey report which says of 163 companies of all sizes across China found that less than half were able to get back to work this week. Even more alarming: a third of roughly 1,000 small and medium-sized companies surveyed by academics from Tsinghua University and Peking University last week said they could only survive for a month with the cash they have. That could spell terrible news for China’s entrepreneurs — and an even worse reality for the country’s economy. About 30 million small and medium-sized businesses contribute more than 60% of the country’s GDP, according to government statistics published last September. The taxes they pay account for more than half of government revenue, and they employ more than 80% of China’s workers.

The major Asian stock markets had a mixed day today:

  • NIKKEI 225 decreased 140.14 points or -0.59% to 23,687.59
  • Shanghai increased 10.93 points or 0.38% to 2,917.01
  • Hang Seng increased 85.60 points or 0.31% to 27,815.60
  • ASX 200 increased 27.00 points or 0.38% to 7,130.20
  • Kospi increased 10.63 points or 0.48% to 2,243.59
  • SENSEX decreased 202.05 points or -0.49% to 41,257.74

The major Asian currency markets had a mixed day today:

  • AUDUSD decreased 0.0004 or 0.06% to 0.6711
  • NZDUSD decreased 0.0003 or 0.04% to 0.6435
  • USDJPY decreased 0.0260 or 0.02% to 109.7470
  • USDCNY increased 0.0081 or 0.12% to 6.9946

 

Precious Metals:

  • Gold increased 7.21 USD/t oz. or 0.46% to 1,580.30
  • Silver increased 0.0949 USD/t. oz or 0.54% to 17.7676

Some economic news from last night:

China:

China Thomson Reuters IPSOS PCSI (Feb) decreased from 70.22 to 59.86

Japan:

Foreign Bonds Buying increased from -150.2B to 1,633.8B

Foreign Investments in Japanese Stocks increased from -295.6B to 282.9B

Thomson Reuters IPSOS PCSI (Feb) decreased from 41.02 to 40.41

Tertiary Industry Activity Index (MoM) decreased from 1.4% to -0.2%

South Korea:

M2 Money supply (Dec) decreased from 8.10% to 7.50%

Export Price Index (YoY) (Jan) increased from -3.1% to -2.7%

Import Price Index (YoY) (Jan) decreased from 3.4% to 2.7%

New Zealand:

Business NZ PMI (Jan) increased from 49.3 to 49.6

FPI (MoM) (Jan) increased from -0.2% to 2.1%

Some economic news from today:

India:

WPI Food (YoY) (Jan) decreased from 13.24% to 11.51%

WPI Fuel (YoY) (Jan) increased from -1.46% to 3.42%

WPI Inflation (YoY) (Jan) increased from 2.59% to 3.10%

WPI Manufacturing Inflation (YoY) (Jan) increased from -0.25% to 0.34%

Bank Loan Growth decreased from 7.2% to 7.1%

Deposit Growth increased from 9.5% to 9.9%

FX Reserves, USD increased from 471.30B to 473.00B

Exports (USD) decreased from 27.36B to 25.97B

Imports (USD) increased from 38.61B to 41.14B

Trade Balance decreased from -11.25B to -15.17B

EUROPE/EMEA:

According to the FT, Europe’s largest members have been asked to add more funds into the union to cover up the shortfall from Brexit.

Mark Zuckerberg has said he is happy to pay more taxes in Europe. In his speech, he understood the frustrations of the EU and said there should be a global solution that all tax giants will adhere to, which will require companies to distribute taxes fairly.

Italy has reached out to the US in advance to get ahead of the curve due to upcoming planned tariffs between the bloc and the US. Italian ministers stressed they have no involvement with the airbus ordeal and should not be penalized for it.

Secretary of State Mike Pompeo has called for action against Iran after they were found sending a shipment of weapons and missiles to Yemeni rebels.

The major Europe stock markets had a negative day today:

  • CAC 40 decreased 23.78 points or -0.39% to 6,069.35
  • FTSE 100 decreased 42.90 points, or -0.58% to 7,409.13
  • DAX 30 decreased 1.22 points or -0.01% to 13,744.21

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.0003 or 0.03% to 1.0844
  • GBPUSD decreased 0.0006 or 0.05% to 1.3039
  • USDCHF increased 0.0027 or 0.27% to 0.9820

Some economic news from Europe today:

Germany:

German GDP (QoQ) (Q4) decreased from 0.2% to 0.0%

German GDP (YoY) (Q4) decreased from 1.1% to 0.3%

German WPI (YoY) (Jan) increased from -1.3% to 0.3%

Swiss:

PPI (YoY) (Jan) increased from -1.7% to -1.0%

PPI (MoM) (Jan) decreased from 0.1% to 0.0%

Spain:

Spanish CPI (YoY) (Jan) increased from 0.8% to 1.1%

Spanish CPI (MoM) (Jan) decreased from -0.1% to -1.0%

Spanish HICP (YoY) (Jan) remain the same at 1.1%

Spanish HICP (MoM) (Jan) decreased from -0.1% to -1.4%

Italy:

Italian Trade Balance (Dec) increased from 4.890B to 5.013B

Italian Trade Balance EU (Dec) decreased from 0.72B to -0.75B

Euro Zone:

Employment Change (YoY) remain the same at 1.0%

Employment Change (QoQ) increased from 0.1% to 0.3%

Employment Overall (Q4) increased from 160,147.7K to 160,584.6K

GDP (YoY) (Q4) decreased from 1.2% to 0.9%

GDP (QoQ) (Q4) decreased from 0.3% to 0.1%

Trade Balance (Dec) increased from 20.7B to 23.1B

US/AMERICAS:

In a rare moment of bipartisanship in the United States, House Speaker Nancy Pelosi agreed with the Trump administration’s stance on blacklisting Huawei. “China is seeking to export its digital autocracy through its telecommunication giant Huawei,” Pelosi stated this Friday. Yesterday, the Department of Justice and FBI charged the company with 16 counts including racketeering, theft of intellectual property, violating sanctions, and breaking the RICO Act. It was recently reported that UK Prime Minister Boris Johnson canceled his trip to the White House after President Trump criticized PM Boris for allowing Huawei to assist in expanding the UK’s 5G network.

Cleveland Federal Reserve Bank President Loretta Mester is concerned that the effects of the coronavirus could “spillover” into US economy. Mester anticipates China, and possibly other Asian nations, will experience a decline in growth during the first quarter. However, she has not yet made her forecast for the US as more data is needed for an appropriate assessment.

Mexico’s central bank, Banxico, lowered its interest rate by 25 basis points to 7.0% in a unanimous vote. Governor Alejandro Diaz de Leon told Reuters that the bank is keeping a close eye on inflation, which rose 3.24% YoY this January, as well as trade. “The Mexican economy has been facing challenges and risks beyond those exclusive to its (economic) cyclical, associated with the uncertainty of the free trade agreement, with monetary policy in advanced economies, and also domestic risk factors,” Diaz de Leon commented.

US Market Closings:

  • Dow declined 25.23 points or -0.09% to 29,398.08
  • S&P 500 advanced 6.22 points or 0.18% to 3,380.16
  • Nasdaq advanced 19.21 points or 0.20% to 9,731.18
  • Russell 2000 declined 6.15 points or -0.36% to 1,687.58

Canada Market Closings:

  • TSX Composite advanced 27.19 points or 0.15% to 17,848.36
  • TSX 60 advanced 1.31 points or 0.12% to 1,064.88

Brazil Market Closing:

  • Bovespa declined 1,281.69 pointas or -1.11% to 114,380.71

ENERGY:

Crude oil had another positive day after rebounding from a difficult January due to the coronavirus. Still, news about diminishing demand from China regarding the outbreak persists.

The oil markets had a mixed day today:

  • Crude Oil increased 0.57 USD/BBL or 1.11% to 51.9512
  • Brent increased 0.85 USD/BBL or 1.51% to 57.1353
  • Natural gas increased 0.0233 USD/MMBtu or 1.27% to 1.8540
  • Gasoline decreased 0.0035 1USD/GAL or -0.22% to 1.5806
  • Heating oil increased 0.0206 USD/GAL or 1.23% to 1.6982
  • Top commodity gainers: Ethanol (2.07%), Brent (1.51%), Coffee (4.02%), and Feeder Cattle (1.37%)
  • Top commodity losers: Sugar (-1.06%), Rubber (-1.02%), Cocoa (-3.65%), and Lumber (-0.88%)

The above data was collected around 14.03 am EST on Friday.

BONDS:

Japan -0.03%(+1bp), US 2’s 1.42% (-2bps), US 10’s 1.58%(-4bps); US 30’s 2.03%(-4bps), Bunds -0.40% (-2bp), France -0.16% (-2bp), Italy 0.93% (+4bp), Turkey 11.25 % (+7bp), Greece 0.95% (-60bp), Portugal 0.24% (-1bp) Spain 0.29% (+3bp) and UK Gilts 0.63% (-2bp).

 



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Why Central Planning by Medical Experts Will Lead to Disaster

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A great deal of the coverage of the COVID-19 crisis has been apocalyptic. That is partly because “if it bleeds, it leads.” But it is also because some of the medical experts with media megaphones have put forward potentially catastrophic scenarios and drastic plans to deal with them, reinforced by assertions that the rest of us should “listen to the experts,” because only they know enough to determine policy. Unfortunately, those experts don’t know enough to determine appropriate policies.

Doctors, infectious disease specialists, epidemiologists, etc. know more things about diseases, their courses, what increases or decreases their rate of spread, and so on than most. But the most crucial of that information has been browbeaten into the rest of us by now. Limited and imperfect testing also means that the available statistics may be very misleading (e.g., is an uptick in reported cases real or the result of an increasing rate of, or more accuracy in, testing, which is crucial to determining the likely future course COVID-19?). Further, to the extent that the virus’s characteristics are unique, no one knows exactly what will happen. All of that makes “shut up and listen” advice less compelling.

More important, however, may be that in making recommendations to address COVID-19, those with detailed knowledge of the disease (the experts we have been told to obey) do not have sufficient knowledge of the consequences of their “solutions” for the economy and society to know what the costs will be. That means that they don’t know enough to accurately compare the benefits to the costs. In particular, because of their relative unawareness of the many margins at which effects will be felt, the medical experts we are being told to follow will likely underestimate those costs. When combined with their natural desire to solve the medical problem, however severe it might get, this can lead to overly draconian proposals.

This issue has been brought to the fore by the increasing number of people who have begun questioning the likelihood of the apocalyptic scenarios driving the “OMG! We need to do everything that might help” tweetstorms, on the one hand, and those who are emphasizing that “shutting down the economy” is far more costly than planners recognized, on the other.

Those who have brought up such issues (how long before they are called “COVID deniers”?) have been pilloried for it. Exhibit A is the vilification of President Trump for “ignoring the scientists,” such as the New York Times‘s claim that “Trump thinks he knows better than the doctors” after he tweeted that “We cannot let the cure be worse than the problem itself.”

One major problem with such attacks is the substantial literature documenting the adverse health effects of worsening economic conditions. For just one example, an analysis of the 2008 economic meltdown in The Lancet estimated that it “was associated with over 260,000 excess cancer deaths in the OECD alone, between 2008–2010.” That is a massive “detail” to ignore in forming policy.

In other words, the tradeoff is not just a matter of lives lost versus money, as it is often portrayed as being (e.g., New York governor Cuomo’s assertion that “we’re not going to put a dollar figure on human life”). It is a tradeoff between lives lost due to COVID and lives that will be lost due to the policies adopted to reduce COVID deaths.

Larry O’Connor put this well at Townhall when he wrote:

Why should the scientific analysis of doctors solely focusing on the spread of the coronavirus carry more weight than the very real scientific analysis of the deadly health ramifications of shutting down our economy? Doesn’t the totality of the data make the argument for a balanced approach to this crisis?

This issue reminds me of a classic discussion of specialists and planning in chapter 4 of F.A. Hayek’s The Road to Serfdom. “The Inevitability of Planning” is well worth noting today:

Almost every one of the technical ideals of our experts could be realized…if to achieve them were made the sole aim of humanity.

We all find it difficult to bear to see things left undone which everybody must admit are both desirable and possible. That these things cannot all be done at the same time, that any one of them can be achieved only at the sacrifice of others, can be seen only by taking into account factors which fall outside any specialism…[which] forces us to see against a wider background the objects to which most of our labors are directed.

Every one of the many things which, considered in isolation, it would be possible to achieve…creates enthusiasts for planning who feel confident…[of] the value of the particular objective…But it is…foolish to quote such instances of technical excellence in particular fields as evidence of the general superiority of planning.

The hopes they place in planning…are the result not of a comprehensive view of society but rather of a very limited view and often the result of a great exaggeration of the importance of the ends they place foremost…it would make the very men who are most anxious to plan society the most dangerous if they were allowed to do so—and the most intolerant of the planning of others…there could hardly be a more unbearable—and much more irrational—world than one in which the most eminent specialists in each field were allowed to proceed unchecked with the realization of their ideals.

Panic has seldom improved the rationality of decision-making (beyond the “fight or flight” reaction to facing a “man-eater,” when to stop and think means certain death). However, much of media coverage has fed panic. But the illogical and intemperate media attacks against those questioning the rationality of draconian “solutions” drown out, rather than enable, objective discussion of real tradeoffs. And if “Democracy dies in darkness,” as the Washington Post proclaims, we should remember that it does not require total darkness. The same conclusion follows when people are kept in the dark about major aspects of the reality they face.



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More Than 16 Million Americans Have Lost Their Jobs In The Past Three Weeks

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The coronavirus’s record-breaking run of bad economic news continues unabated. Thursday’s numbers from the Department of Labor reported that 6.6 million Americans filed initial claims for unemployment insurance, roughly the same as last week (which was revised to 6.9 million) and about double the previous week’s tally of 3.3 million.

Add it up, and over the course of three weeks, a total of 16.8 million seasonally adjusted unemployment claims have been filed. If we borrow the math from this Justin Wolfers piece in The New York Times last week, that means somewhere around 15 to 17 percent of the workforce might currently be without a job. (For comparison’s sake, that number was 25 percent at the height of the Great Depression.)

The U.S. has had eight recessions since 1967,1 including the one we are almost certainly in right now.2 Of those, four (1969-70, 1980, 1990-91 and 2001) never reached our current level, over 16 million unemployment claims. For the others, it took a tremendous amount of time to reach that level: between 33 weeks (1981-82) and 51 (1973-75). Even in the Great Recession a decade ago, it took 42 weeks to get 16 million total initial claims. This time around, it has taken three.

This recession is moving at hyperspeed

For U.S. recessions since 1967, number of weeks before reaching each benchmark for total initial unemployment insurance claims

Weeks before no. of total initial claims
Recession of … 3,000,000 9,000,000 16,000,000
1969-70 13 33 Never
1973-75 11 31 51
1980 8 19 Never
1981-82 7 20 33
1990-91 8 22 Never
2001 8 23 Never
2007-09 9 26 42
2020* 1 2 3

*The current economic downturn hasn’t yet met the traditional definition of a recession.

Previous recessions were considered to have started midway through the month they officially began and ended midway through the month they finished.

Sources: Department of Labor, St. Louis Federal Reserve, National Bureau of Economic Research

Now, it’s important to remember that the U.S. population has also increased by 66 percent since 1967, meaning there are more workers to potentially file claims now. Furthermore, total initial claims are not equivalent to the number of people who are actually receiving unemployment benefits.3 And, of course, economists look at much more than just unemployment when determining whether a recession has happened.

That said, the sheer job-loss numbers for this recession — and the velocity at which they were amassed — are difficult to comprehend.

Going back to previous recessions, some analysts see parallels to the 1981-82 downturn. That recession is considered to have been triggered by changes in monetary policy, when former Federal Reserve Chairman Paul Volcker aggressively raised interest rates to combat inflation. By comparison, this recession was triggered by widespread stay-at-home orders that effectively shuttered countless businesses and put millions out of work. (We should note that economists almost unanimously agree that this was the best decision not only for public health reasons but also for the long-term economy.) Many jobs were lost in the early 1980s, but the unemployment rate quickly dropped after the initial shock, which may provide a model for people to return to work swiftly after the coronavirus crisis lifts.

Again, though, that early 1980s recession took much longer to reach present levels of jobless claims, so in many ways our current recession represents an unprecedented situation. That’s particularly true when you consider the underlying reason why people can’t go back to work — a novel virus for which a vaccine is still quite far off — and the uncertainty around what its eventual timeline will end up being. One thing is for sure, however: Most of us have never seen a recession produce such extreme economic hardship, so quickly, as what the U.S. is going through right now.



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Newsletter: What Will the Recovery Look Like?

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Brought to You by the Letters U and V

The coronavirus pandemic will cause a severe economic contraction, 14.4 million job losses and a spike in the unemployment rate this spring, economists forecast in a Wall Street Journal survey. Business and academic economists in this month’s survey expect, on average, that the unemployment rate will hit 13% in June this year, and still be at 10% in December. The jobless rate was 4.4% in March. Still, nearly 85% of economists expect the recovery will start in the second half of the year. Economists are roughly split on whether the expected recovery will be U shaped—with a prolonged bottom—or V shaped—a sharp drop followed by a sharp rebound. They say the recovery will depend on when social-distancing measures end and whether the virus can be contained, Harriet Torry and Anthony DeBarros report.

What do you think—V, U, L or something else? Let us know at realtimeeconomics@wsj.com.

WHAT TO WATCH TODAY

U.S. jobless claims are expected to remain elevated at 5 million for the week ended April 4. They hit a record 6.648 million a week earlier. (8:30 a.m. ET)

The U.S. producer price index for March is expected to fall 0.4% from a month earlier. (8:30 a.m. ET)

Fed Chairman Jerome Powell talks about the state of the economy in a webcast hosted by the Brookings Institution at 10 a.m. ET. 

The University of Michigan preliminary consumer sentiment index for April is expected to fall to 75.0 from 89.1 at the end of March. (10 a.m. ET)

The Baker Hughes rig count is out at 1 p.m. ET.

San Francisco Fed President Mary Daly answers questions at the website Quora at 4 p.m. ET.

China’s consumer and producer price indexes for March are out at 9:30 p.m. ET. Economists expect consumer inflation to have eased a little, while producer deflation deepend, reflecting weaker demand amid the pandemic.

Note: This is a partial listing of events and subject to change.

TOP STORIES

Another Week of Heavy Job Losses

The ranks of Americans filing jobless claims likely swelled again last week. Economists surveyed by the Wall Street Journal expect 5 million Americans filed for unemployment benefits in the week ending April 4. That would bring the number of applications for the last three weeks to nearly 15 million—more than the entire labor force in the state of Texas. It isn’t clear when jobless claims will peak, but evidence suggests that they will continue to log in at high levels in the coming weeks. The federal rescue package signed into law last month increases the pool of workers who can tap benefits and, perhaps more significantly, some states are still addressing backlogs of claims, Sarah Chaney and David Harrison report.

Each additional week of historically high claims dims the prospects for a rapid economic recovery. “The biggest direct impact of the loss of jobs is going to be the loss of income and therefore the loss of spending,” said Jacob Robbins, assistant professor of economics at the University of Illinois at Chicago.

Illinois and New York workers have started receiving larger unemployment payments from expanded coronavirus benefits. The two states are among the first to disburse the $600 payments—which are in addition to regular weekly unemployment checks—included in a $2 trillion federal stimulus package signed into law on March 27, Sarah Chaney and Kate King report.

Amazon’s 100,000 job openings in its warehouses and delivery network are a rare bright spot in the U.S. economy. While numerous restaurant, hospitality and hourly workers have flocked to the retail giant after being laid off or furloughed, the opportunities are also attracting seasoned professionals in traditionally white-collar jobs, Dana Mattioli reports.

Out of a job? What to know about getting unemployment benefits.

Supply Chain Reaction

The Trump administration is planning to restrict for four months the export of certain face masks and gloves designed to slow the spread of the novel coronavirus. The move shows that the U.S. is seeking to keep personal protective equipment available to U.S. citizens despite existing private contracts and international trade rules designed to protect global supply chains, William Mauldin reports.

Germany has struck a deal with China to receive large-scale shipments of supplies to battle the coronavirus. A first shipment of over eight million face masks arrived in Munich on Tuesday, Bojan Pancevski reports.

The Trump administration is turning toward the most well-worn pages of its global playbook—tariffs and threats—as it tries to stop an oil-price war from crippling dozens of U.S. companies. The tactic is aimed at leveraging U.S. power to get Saudi Arabia and Russia to reduce a flood of crude swamping the market, Timothy Puko and Christopher M. Matthews report.

Global Test

The health of the global economy comes down to a race between money flooding out of emerging markets amid the coronavirus pandemic and the efforts of the International Monetary Fund and World Bank to pump money back in. More than 90 countries have inquired about bailouts from the IMF—nearly half the world’s nations—while at least 60 have sought to avail themselves of World Bank programs. The two institutions together have resources of up to $1.2 trillion that they have said they would make available to battle the economic fallout from the pandemic, but the question is whether they can move quickly enough to reverse the mounting damage, Josh Zumbrun and David Harrison report.

Progress Report

Why a coronavirus surge hasn’t hit Washington. The state’s early work-from-home orders, school shutdowns and bans on large gatherings have played a major role in reducing the virus’s transmission rate.

Another case of an early, strict lockdownNew Zealand was on a similar trajectory to Italy and Spain—modeling suggests its 205 cases on March 25 could have grown to more than 10,000 by now if the country hadn’t implemented stringent social distancing policies. Reported cases now total 1,239. The total number has fallen for the past four days, with 29 new cases Thursday, the lowest daily number since March 23, before the lockdown began.

Italy appears to be turning the corner in its battle against the virus. New infections are declining, the number of people needing intensive therapy and other hospital care is stabilizing, and even the daily death toll is finally trending down. Its national lockdown since early March is showing that an unruly, freedom-loving Western society can come together at a critical time to contain the pandemic, Eric Sylvers and Yaroslav Trofimov report.

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