Mar 5, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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(Today's Smart Brevity count: 1,039 words, 4 minutes.)

🎙"When the Colonists were staggering wearily under the cross of woe, a Negro came to the front and bore the cross to the victory of the glorious martyrdom.” - See who said it and why it matters at the bottom.

1 big thing: What the Fed has learned about the coronavirus outbreak

Illustration: Eniola Odetunde/Axios

The COVID-19 outbreak began weighing on U.S. businesses even before the virus had really begun its spread in the U.S., the Fed's latest beige book shows.

Why it matters: The extent of the outbreak can't yet be quantified, but the report, a collection of anecdotes from the central bank’s business contacts around the country, suggests U.S. firms could be in for a significant slowdown in March.

  • The reporting period for the beige book ended on Feb. 24, two days before the first U.S. case of unknown origin, in which an American was affected without visiting the virus' epicenter or being in contact with a person who had.

What happened: The Fed's report contained 48 mentions of the term "coronavirus," and while the report characterized the U.S. economy as growing at a "modest to moderate pace," it also noted the St. Louis and Kansas City districts, which include 12 Midwestern and Southern states, reported no growth during this period.

What it said: "Consumer spending generally picked up, but growth was uneven across the nation."

  • "Overall, growth in tourism was flat to modest."
  • "There were indications that the coronavirus was negatively impacting travel and tourism in the U.S."
  • "Manufacturing activity expanded in most parts of the country; however, some supply chain delays were reported as a result of the coronavirus and several Districts said that producers feared further disruptions in the coming weeks."

The big picture: The Fed took the highly unusual step of cutting U.S. interest rates by 50 basis points Tuesday in order to soothe markets, but many economists fear the virus could send the country (and potentially the world) into a recession this year.

The bottom line: If quickly contained, the virus' economic impact would be minimal. Fiscal and monetary authorities around the globe are joining together to reduce the virus' impact, but if its spread continues there is limited action policymakers can take.

Bonus: "Hamilton" tickets get discounted

The Fed's beige book also noted that Broadway theater ticket prices have fallen slightly so far this year.

The intrigue: WSJ's Spencer Jakab noted in its Heard on the Street newsletter that he found matinee tickets to Broadway's hottest attraction, "Hamilton," on sale for $135, well below their normal price on the secondary market.

2. Catch up quick

The House of Representatives passed an $8 billion health spending bill aimed at fighting the coronavirus outbreak as the U.S. death toll rose to 11, with a death in California and new cases in New York. (WSJ)

St. Louis Fed President James Bullard, a non-voter, said markets are wrong to assume the central bank will cut rates again at its upcoming policy meeting. (Bloomberg)

Fed Governor Lael Brainard argued against a decision by the Fed to simplify its “stress capital buffer” rule, saying that the actual outcome will be a “green light for large banks to reduce their capital buffers materially.” (Bloomberg)

Senate Finance Committee Chair Senator Chuck Grassley said the coronavirus outbreak could require the U.S. to make some adjustments to the phase one U.S.-China trade deal. (Reuters)

3. Government minimum wage hikes pay off for low-wage workers
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Reproduced from: Economic Policy Institute; Chart: Axios Visuals

American low-wage workers increased their earnings significantly in 2019, seeing higher wage growth than workers at the higher end of the income spectrum.

  • And that growth was largely fueled by increases in state minimum wages, a new study from the Economic Policy Institute shows.

Details: The left-leaning think tank's report finds that low-wage workers in the 23 states (plus Washington, D.C.) that raised their minimum wage last year saw "much faster wage growth than low-wage workers in states that did not increase their minimum wage between 2018 and 2019."

  • Workers in the 10th percentile, or the lowest 10% of wage earners in the country, had significantly different levels of income growth depending on where they lived, the report found.
  • Workers in states with increased minimum wages saw their earnings grow by more than four times what those in states without the minimum wage increase did.
  • For a full-time worker, the difference adds up to about $2,500 a year.

By the numbers: Improving labor market conditions occurred in both states that did and did not raise their minimum wages, but the report found slightly faster growth (+0.4 percentage points) in states with increases than in states without (+0.3 percentage points).

  • "While far from a comprehensive analysis," EPI senior economist Elise Gould notes, "there doesn’t appear to be any negative economic effect from raising the minimum wage."

Between the lines: Wages rose more quickly for workers in states with no minimum wage increases at higher income levels.

  • "This belies any claims that strong wage growth at the 10th percentile is simply due to stronger overall wage growth in those states and that 10th-percentile wages in those states would have risen with or without the minimum wage increases," Gould says in the report.
4. Health care stocks surge after Biden's Super Tuesday wins
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Data: Money.net; Chart: Andrew Witherspoon/Axios

Health care stocks soared Wednesday, led by double-digit percentage gains from major health insurers Anthem, Centene, Cigna, Humana and UnitedHealth Group, Axios' Bob Herman writes.

The big picture: Nothing has changed with the health care industry, which is still printing money. But Joe Biden's Super Tuesday victories reassured Wall Street of his chances of beating Bernie Sanders and "Medicare for All” — and that a Biden presidency or a Trump re-election will keep the lucrative status quo in place.

Between the lines: The political prognostications of Wall Street and its trading algorithms have been all over the board in the past year.

  • The sentiment was especially sour last April after UnitedHealth called out Sanders' Medicare for All policy during an earnings call.

The bottom line: Medicare for All faces a lot of political hurdles in Congress, but so do Biden's reforms. Any changes will face a huge battle from an industry that is both deep-pocketed and politically connected.

5. Campbell ramps up production as coronavirus fears drive demand
A screenshot of a tweet from CNBC with Campbell Soup CEO Mark Clouse.

Campbell Soup stock jumped 10% on Wednesday as the company's CEO went on a media tour to tout the growing demand for the company's products in the face of COVID-19 fears.

What he's saying: CEO Mark Clouse told CNBC Wednesday that the company is increasing soup production in response to the coronavirus outbreak.

  • “We made the decision last week to up production in certain areas where we’re using a little bit the analogy of weather or natural disasters,” Clouse said.

What he's also saying: In a separate interview Wednesday, Clouse told Reuters that a few retail customers had begun stepping up orders. The company had already started building inventory for ingredients that are usually stockpiled during natural disasters, including canned soups, snacks and Prego pasta sauces.

  • “We’re working very closely with folks to make sure that we keep them in stock,” Clouse said, adding that “honestly before this weekend we had not seen much” higher demand.
Dion Rabouin

Quote: "When the Colonists were staggering wearily under the cross of woe, a Negro came to the front and bore the cross to the victory of the glorious martyrdom.”

Why it matters: On March 5, 1770, British troops killed five civilians in what would come to be known as the Boston Massacre. The first was Crispus Attucks, a black man. George Washington said the quote above in reference to Attucks' death.