Jan 15, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🎙 "Love. It isn't very popular in technical circles to say a lot of mushy stuff about love, but frankly, it's a very, very important part of what holds our project together." - See who said it and why it matters at the bottom.

1 big thing: Manufacturing should bounce back

Illustration: Aïda Amer/Axios

Last year was one to forget for the world's manufacturers, as industry metrics declined to some of the lowest levels in years.

  • But investors and industry insiders see the sector mounting a comeback in 2020 as the trade war and tariffs are expected to recede, global demand is expected to increase and companies begin to reroute their supply chains.

Why it matters: The sector remains a leading indicator of economic health and was notably hobbled in 2019 by the U.S.-China trade war.

  • A bounce-back could help reverse the slowdown that has dragged global economic growth to its lowest since the 2008-2009 financial crisis.

Flashback: After seeing a boom of jobs growth in 2017 after President Trump was elected, gaining nearly 500,000 jobs in his first 30 months in office, the industry's job gains slowed to a near standstill in 2019.

  • The U.S. economy netted just 46,000 manufacturing jobs total last year and added a net 9,000 in the last six months.

What we're hearing: Steve Rosen, who invests heavily in manufacturing companies as CEO of Resilience Capital Partners, tells Axios he's "feeling much more positive about 2020" and expects a rebound in the second half of the year, as companies are forced to make up for 2019's weak spending.

  • "If you haven’t been buying trucks and you have a fleet ... eventually, you’re going to go out of business or you’re going to have to replace them," he says.
  • He's also hopeful the "phase one" trade deal between the U.S. and China will help revitalize the agriculture sector, prompting more sales of farming equipment, and drive demand from overseas.

Tom Derry, CEO of the Institute for Supply Management, which has tracked manufacturing since the 1940s, and last month recorded the industry at its weakest level since 2009, also is bullish. He expects to see signs of a turnaround within the next few months.

  • "I can’t read the future, but it would be unusual for us to be at this level for much longer," he tells Axios.
  • Companies surveyed by ISM have begun to reroute their supply chains out of China and are finding alternate partners and suppliers, Derry says.
  • "We’re about a year and a half into the trade war, and we’re now starting to see the reconfigurations have a positive impact."

Yes, but: "I definitely would be concerned if we saw significant further deterioration," Derry says. "But I don’t expect that."

2. Catch up quick

The U.S. and China are set to sign the "phase one" trade deal today, but the U.S. won’t cut any additional China tariffs until after the presidential election, anonymous sources said. (Bloomberg)

The New York Fed said it will continue its repo market injections through at least Feb. 13, but the size of term operations will be trimmed to $30 billion from the start of next month. (Bloomberg)

The EU plans to shift 1 trillion euros in investment toward making its economy more environmentally friendly over the next 10 years. (AP)

Germany’s economy grew by 0.6% in 2019, the weakest pace since 2013 and the country’s Economy Ministry says the weak phase is not over yet. (Reuters)

Closing arguments are scheduled in the T-Mobile-Sprint merger trial today, with shares of Sprint currently trading more than 40% below the value of T-Mobile’s proposed all-stock deal. (WSJ)

3. Decline in business lending shows manufacturing's impact
Expand chart
Data: Federal Reserve Bank of St. Louis; Chart: Axios Visuals

U.S. commercial and industrial lending fell by $9 billion in December, the largest drop in nearly three years, and the total amount of C&I loans declined to levels last seen in May, data from the St. Louis Fed shows.

Why it matters: The decline in lending to commercial and industrial businesses is the latest sign that the recession in U.S. manufacturing and continued struggles in goods-producing sectors of the economy are spreading.

Background: The Commerce Department reported that U.S. business investment had contracted for six straight months as of the third quarter, and had the biggest drop since the end of 2015 in Q3.

4. Many Americans still can't afford medical expenses
Expand chart

Reproduced from Gallup; Note: ±4 percentage point margin of error; Chart: Axios Visuals

The latest poll from Gallup shows more Americans are putting off medical care because of the cost.

Why it matters: Despite a declining unemployment rate and growing GDP, an increasing number of Americans say they are forgoing often necessary medical procedures because of the cost.

  • The number of people putting off medical care because of cost began to decline in 2014, but in 2018 picked up again substantially.
  • Last year's study found the highest number of people putting off care for a serious condition in the history of the study, by a wide margin.

Watch this space: A separate study conducted by the American Cancer Society in May found 56% of U.S. adults have had at least one medical financial hardship.

  • Robin Yabroff, lead author of the American Cancer Society study, told The Guardian that Gallup's poll was “consistent with numerous other studies documenting that many in the United States have trouble paying medical bills."

Between the lines: 2014 was the year many of the Affordable Care Act's major changes became law.

  • Federal subsidies for health insurance went into effect, providing them to individuals earning less than 400% of the poverty level.
  • Small business tax credits took effect, covering up to 50% of premiums.
  • The rollback on bans for preexisting conditions took effect. 
  • The requirement for individuals to buy health insurance began.

The Trump administration has rolled back a number of these changes, most notably the individual requirement to buy health insurance, and has cut funding for many of its programs.

Reality check: These are facts. Do not @ me.

5. JPMorgan, Citi start earnings season strong

JPMorgan Chase and Citigroup reported better-than-expected fourth-quarter earnings Tuesday, while Wells Fargo missed.

What happened: JPMorgan's and Citigroup's stock both gained more than 1% while Wells Fargo dropped by over 5%.

Details: JPMorgan, the largest U.S. bank by assets, reported earnings of $2.57 a share and revenue rose 9% to $29.2 billion. Citi reported EPS of $1.90 and revenue, net of interest expense, rose about 7% to $18.38 billion. All of which beat analysts' expectations.

  • JPMorgan's big numbers were driven by an 86% surge in bond trading revenue, year over year.
  • Citi saw trading revenue rise nearly 31%, with a 49% jump in fixed-income trading, though equities trading fell 23% due to weak performance in derivatives.

On the other side: Wells Fargo saw total revenue decline more than 5% to $19.9 billion. Net income took an even bigger hit, falling by more than half to $2.9 billion, down $0.60 per share.

Dion Rabouin

Wikipedia was launched on Jan. 15, 2001, by Jimmy Wales and Larry Sanger. Sanger coined its name, as a portmanteau of "wiki" (the Hawaiian word for "quick") and "encyclopedia," according to Wikipedia. The quote is from Wales.