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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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Economy

Book of the Week 7: To Engineer Is Human by Henry Petroski

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Henry Petroski is a fascinatingly eclectic writer – a nerd with the soul of a poet. I relied upon his book The Pencil: A History in writing the opening chapter of the forthcoming The Next Fifty Things That Made The Modern Economy (coming in May), and turned to Success Through Failure while writing Adapt.

I was delighted to receive To Engineer Is Human as a Christmas present – one of those rare surprise presents that actually works out… It’s a wide-ranging collection of essays and musings. Topics range from the experience of being a toddler in a world of adults, through the distinctive pattern of fatigue in a “Speak & Spell”, to the catastrophic collapse of walkways in the lobby of a Kansas City hotel in 1981.

One provocative idea in Petroski’s work is the idea that engineers learn through trial and error more than one might expect. Yes, there are the laws of physics and in principle one can calculate the load-bearing strength of any structure – but in practice, when we try to do something new we will sometimes run into the unexpected.

Not every essay hits the mark – I didn’t feel moved or improved by the analysis of the Oliver Wendell Holmes poem “The Deacon’s Masterpiece” – but like a collection of poems or short stories, if you don’t enjoy one you can skip to the next. Overall I felt I was learning things from Petroski that I wouldn’t learn from anybody else.

Some overlap with the more recent book Success Through Failure, but lots to intrigue.

US: Powell’s / Amazon   UK: Blackwells / Amazon

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Playing Scrooge in “The Best Economy Ever”

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@TBPInvictus here:

On Presidents Day, it is noteworthy that the current President feels compelled to cap the salaries of those employees who work for the government, who perform duties in the national interest, and  operate essential services for the benefit of the nation.

Salary increases limited to 1% annually. That ought to teach the Deep State!

Read Trump’s February 11 tweet below and try to reconcile it with the Feb 10 excerpt from a White House transmittal to Congress the day before.

Trump tells us — constantly and incessantly — that he has created the “best economy in history.” Let’s ignore the fact that he inherited  a robust GFC recovery from Obama, and then temporarily goosed it with an unfunded trillion dollar tax cut that never got us over 3% GDP on a sustainable basis, and which has since worn off, leaving us at a 2% or so GDP.

While we’re all enjoying the greatest economy ever, could he possibly – unilaterally, no less – cut the proposed pay increases (to 1.0%) for the nation’s Federal employees?

I don’t profess to have any other answer than that the man is a stone-cold hypocrite and liar. I’m open to other possibilities.

The previous day, February 10, 2020 (emphasis mine):

I am transmitting an alternative plan for pay adjustments for civilian Federal employees covered by the General Schedule and certain other pay systems in January 2021.

Title 5, United States Code, authorizes me to implement alternative plans for pay adjustments for civilian Federal employees covered by the General Schedule and certain other pay systems if, because of “national emergency or serious economic conditions affecting the general welfare,” I view the increases that would otherwise take effect as inappropriate.

[…]

We must maintain efforts to put our Nation on a fiscally sustainable course; Federal agency budgets cannot sustain such increases. Accordingly, I have determined that it is appropriate to exercise my authority to set alternative pay adjustments for 2021 pursuant to 5 U.S.C. 5303(b) and 5 U.S.C. 5304a.

Specifically, I have determined that for 2021 the across-the-board base pay increase will be limited to 1.0 percent and locality pay percentages will remain at their 2020 levels. This alternative pay plan decision will not materially affect our ability to attract and retain a well‑qualified Federal workforce.

This is rank hypocrisy. I don’t know who else is flagging this, but:

 

Greatest. Economy. Ever.

The post Playing Scrooge in “The Best Economy Ever” appeared first on The Big Picture.



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Arguments for Compulsory Vaccination

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The Connecticut legislature wants to abolish the last non-medical exception for the compulsory vaccination of children, following in the steps of five other state governments (“Connecticut Lawmakers Brace for Public Hearings on Vaccination Bills,” Wall Street Journal, February 15, 2010). Two serious economic arguments can be made in favor of this measure. (It wouldn’t protect against the coronavirus, for which there is yet no vaccine, but this epidemic is certainly a motivation or an excuse for strengthening compulsory vaccination.)

The first argument is a public good argument, which can be summarized as follows. Everybody potentially benefits from other individuals being vaccinated, the main beneficiary being those whose age or state of health precludes vaccination. Immunization through vaccination is thus a public good, to the production of which everybody must contribute. A large part of this contribution consists in having oneself vaccinated. In order to prevent potential free riders from skirting vaccination while benefiting from that of others—benefiting from the so-called “herd immunity”—compulsory vaccination is justified. Richard Epstein’s article “Let the Shoemaker Stick to His Last” (Perspectives in Biology and Medicine 46:3, 2003) can be interpreted this way.

The second argument for “compulsory” vaccination relates to the fact that, nowadays, it is, thus far, advocated only for children as a condition for admission in public schools (or perhaps private schools too). A child, the argument goes, is, by definition, too young to know where his own interest lies, especially in probabilistic choices such as between the risk and consequences of catching the disease on one side, and the inconvenience and risk of vaccination on the other side. The child’s parents must make the choice. However, as was famously said in a slightly different context:

A priori, parents would ideally always be willing and able to protect children from tobacco themselves. If this happened, there would be little need for governments to duplicate such efforts. Perfect parents, however, are rare.

This statement is due to Prabhat Jha et al., “The Economic Rationale for Intervention in the Tobacco Market,” in Prabhat Jha and Frank J. Chaloupka, Eds., Tobacco Control in Developing Countries (World Bank and Oxford University Press, 2000), p. 164. Note that the title of the book is a misnomer, for it is concerned as much with rich countries as developing ones.

The validity the two arguments for compulsory vaccination, even for children, is not obvious.

The first argument is analogous to the one that Thomas Hobbes, in his 1651 book Leviathan, made for the state in general. Since the security provided by the state is in everybody’s interest—since it is, in today’s terms, a public good—it is also in everybody’s interest not only that everybody contribute to financing the state, but also that the state be the only judge of everybody’s contribution. Otherwise, free riders will ride. Or so claimed Hobbes.

One problem with the Hobbesian argument, as well as with the public-health argument for compulsory vaccination, is that it justifies absolute power. Although Hobbes took the argument very seriously, some would dismiss the fear of tyranny as a slippery-slope argument. As if slippery slopes did not exist. Consider how, in the early 20th century, compulsory vaccination was used to legalize forced sterilization. The famous 1927 Supreme Court decision in Buck v. Bell (274 U.S. 200) said it clearly:

The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes.

It was not an abstract matter. The decision legalized previous and future forced sterilizations against individuals deemed to be “imbecile,” “feebleminded,” “defective,” or “socially inadequate.” It is estimated that more than 65,000 Americans were forcibly sterilized up to the 1980s. The last sterilization statute, in Mississippi, was only repealed in 2008. (On this topic, see Paul A. Lombardo, Three Generations, No Imbeciles: Eugenics, the Supreme Court, and Buck v. Bell [John Hopkins University Press,2008].)

Another problem with the public-good argument is that, technically, it only applies to goods or services unanimously desired. If basic security against aggression can be assumed to be a public good, the assumption becomes less valid as it is extended to other goods or services. Indeed, from what we can observe in the anti-vaxxer movements, many people do not want vaccination because they think that its cost is higher than its benefits for them or their children. From the point of view of a philosopher-king, this may be true or not, but it is not correct to think that there is no “objective” risk. For example, philosopher Mark Navin (who believes that compulsory vaccination is morally justified) cites the Centers for Disease Control and Prevention according to whom the DTaP vaccine (against diphtheria, tetanus, and whooping cough) causes long-term seizures or brain damage in “only” one out 1,000,000 children (Values and Vaccine Refusal: Hard Questions in Ethics [Routledge, 2016]).

Furthermore, there is a good economic argument against government pretending to determine the “optimal” vaccination coverage. University of Chicago economist Tomas Philipson brilliantly argued that the fewer the number of people who get vaccinated, the higher the risk factor for the unvaccinated, and the higher the latter’s incentives to get vaccinated (or to use other prevention measures). (See notably his “Economic Epidemiology and Infectious Diseases,” in A.J. Culyer and J.P. Newhouse, Eds., Handbook of Health Economics, Vol. 1 [Elsevier Science B.V., 2000].)

As for the argument that imperfect parents cannot be trusted to make decisions in the best interest of their children, the basic counterargument is quite simple: have you seen many perfect politicians and perfect bureaucrats? Despite a few extreme and troubling cases, parents have been genetically hard-wired to look out for their children’s interests. There is no such hard-wiring for the state.

To be clear—and to this extent that this may seem relevant—I am not arguing that the anti-vaxxers are right. In fact, I don’t agree with their evaluation of costs, but I don’t claim that their children belong to me either.

In this short post, I have only scratched the surface of the issue. It may get especially pressing if an epidemic scare grips the public. It will be interesting to see if populists affirm the primacy of individual choices or, at least, the presumption of individual liberty or, instead, just follow a frightened and irrational mob.

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