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Good morning, and happy Monday to everyone. There’s another busy earnings week on the calendar, but the biggest story today remains China. Everyone wants to know: Will the world’s No. 2 economy re-open fully for business this week?
Market movers
So let’s start there. The Asian markets are mixed despite news over the weekend that the coronavirus outbreak (death toll now at 908, infections above 40,000) has now surpassed the 2003 SARS crisis. Europe is down, and U.S. Futures are just above break-even, and slipping, as I type.
On the bright side…Even after Friday’s swoon, the Dow, Nasdaq and S&P 500 are up year-to-date, and European equities had their best week last week in years. So equities are more than holding their own during this uncertain period.
If you’re wondering what’s the biggest loser from the coronavirus outbreak so far—it’s commodities, from Brent crude to copper. If Chinese factories are unable to go fully operational this week, look for more pain there as economists calculate the impact on global trade and growth well beyond Wuhan.
The almighty dollar
As a Yank abroad, I’m a bit of an FX nut. I check dollar performance almost daily, sometimes even before I scan the baseball box scores.
Around Christmas I started noticing a fair number of predictions that 2020 would be something of a reckoning for the greenback. As recently as mid-January, “weakening dollar” headlines were predicting a lift for commodities and for American multinationals.
Coronavirus has all but wiped out that talk.
The dollar, while down slightly today, is the ultimate safe haven. It tends to climb during periods of great uncertainty. That’s proved axiomatic during the coronavirus outbreak.
The conventional wisdom is that should the coronavirus outbreak extend into the second quarter, various sectors will suffer and, conversely, traditional safe havens—the dollar—will fare well. Such a scenario would have big ripple effects. A strong dollar makes exports more expensive, which messes with the competitiveness of American companies abroad.
As the Wall Street Journal noted over the weekend, American multinationals in various sectors, including 3M, Ford Motor Co., Johnson & Johnson and Coca-Cola, have all warned of “the negative effects of currency swings on earnings calls.”
Today’s chart reveals what they’re seeing: a rapidly climbing dollar over the past month.
In the FX world, a 1.7% climb (as measured by the U.S. Dollar Index) in a little over three weeks is an impressive gain, one that will get the attention of CFOs.
The concern is that a sustained rally by the greenback could impact the earnings of multinationals in upcoming quarters. Add to the strong dollar supply chain disruptions, a China slowdown and global trade shocks and you can see how this contagion could exacerbate the biggest vulnerabilities in the global economy.
Something to watch.
***
A quick shout-out to all those newsletter readers who have sent me their predictions on Dow 30,000. If you haven’t done so, there’s still time. Drop me a note.
Have a good day.
Bernhard Warner
@BernhardWarner
[email protected]
Today's reads
Cashing out. Investors scrutinizing chief executives’ behavior for buy/sell signals will be reassured to learn that few bosses are selling their shares despite the stock market boom. Despite a 30% leap in the S&P 500 last year, only 80 CEOs reduced their stakes in the companies they run, The Wall Street Journal has calculated. But it's not all rosy. Of those that did, the vast majority—67—did so at the same time as their companies were buying back shares. Rob Jackson, a commissioner at the Securities and Exchange Commission, thinks this is a “real governance problem.”
Axis of power. Could the U.S.-China trade war cost the U.S. Its crown as global tech leader? Ken Griffin, CEO of hedge fund Citadel, thinks it's a distinct possibility, Coins2Day’s Lucinda Shen reports. Aggressive U.S. Moves against Chinese tech firms are encouraging Beijing to become more technologically self-reliant and that could lead to a world where the United States and its allies have one set of technology, and China and its allies have another.
Tesla shorts. Spare (yet another) thought for the Tesla bears. Investors who bet that Tesla was hugely overvalued, and set for a tumble, have been badly burned by last week's surge to a record high of just below $969, losing $8.4 billion since January, The Wall Street Journal tallies. As one such bear told the newspaper: “Someone could go buy a brand new Toyota Camry with the loss that I took.” Why are shorts so keen on Tesla shares? Check out Shawn Tully's by-the-numbers takedown of Elon Musk's creation.
Market candy
Finn-ancial savvy. Finland has been declared the happiest country on earth. But there is a cloud on the horizon in the form of a sharp rise in household debt. Some experts believe that the rapid adoption of digital payments has led tech-savvy Finns to forget the meaning of financial restraint. The Finnish central bank plans to do something about it by drawing up a financial-literacy schooling plan for citizens, Bloomberg reports.
