February 24, 2020
Good morning! I'm coming to you from Washington, D.C., at the National Association for Business Economics policy conference. Speaking of...
Situational Awareness: Members "no longer believe a recession is likely in 2020 — a reversal from the predominant view of panelists in the February 2019 survey,” NABE president Constance Hunter, who also serves as chief economist at KPMG, said in a statement.
- “Only 13% of panelists now forecast a downturn in 2020. When asked what odds they place on a 2020 slump, a majority of respondents places the probability at 25% or less."
📺 Mark your calendars — Season 3 of “Axios on HBO” kicks off 6 pm ET/PT Sunday, March 1! (Today's Smart Brevity count: 1,249 words, < 5 minutes.)
1 big thing: Coronavirus is going global
New cases of the novel coronavirus have rocked asset prices in Japan, South Korea and Italy, as those nations and others have ratcheted up emergency efforts to contain the outbreak.
What's happening: Asian stock markets continued to tank overnight, as South Korea's Kospi dropped nearly 4%, Australia's ASX fell by 2.3% and Hong Kong's Hang Seng declined by 1.8%. MSCI’s index of Asia-Pacific stocks outside Japan touched its lowest since early February.
- Currencies also have sold off, led by the Japanese yen and Korean won, which have fallen to their lowest levels against the dollar since May and September, respectively, in the past week.
- The euro clawed back some losses against the dollar after dropping to its lowest versus the greenback since mid-May last week.
- S&P 500 futures prices were lower by 1% ahead of the market open after dropping by more than 1% on Friday.
Driving the news: South Korean President Moon Jae-in called for “emergency steps in this time of emergency” on Sunday after the country reported more than 160 new cases of the coronavirus, a number which grew to 833 total infections this morning. The government raised the infectious disease alert to its highest level.
- That followed Italy's announcement of emergency measures — including quarantines for several northern towns — as confirmed cases spiked from three to 132 in a matter of days. It's now thought to be near 200, making it the largest outbreak outside of Asia.
- Iran announced its first infections last week and said Monday it had confirmed 43 cases and 12 deaths.
What they're saying: Finance ministers and central bank governors of the world's largest countries pledged to "enhance global risk monitoring" and warned the coronavirus posed a serious threat to global growth during their weekend meeting in Riyadh, Saudi Arabia.
- The group of G20 leaders said in their official communique that the virus was central to their discussions.
- IMF head Kristalina Georgieva revised down the organization's 2020 growth forecast for China by 0.4 percentage points to 5.6% along with an expected 0.1 percentage point decline in global GDP because of the virus.
The big picture: “The news flow from the weekend has changed the game somewhat, where the focus is much more on the threat of an outbreak outside of China,” Chris Weston, head of research at broker Pepperstone, told Reuters.
Bonus: U.S. services and manufacturing sink in February
The U.S. economy has taken a significant hit so far in February, due in part to the coronavirus outbreak.
By the numbers: The all-important U.S. services sector contracted for the first time in four years, data released Friday from IHS Markit showed, and fell to its lowest level in more than six years.
- The composite index, that includes services and manufacturing, dropped to its lowest in six years, ending a nearly four-year period of expansion.
Why it matters: The services sector accounts for more than two-thirds of the U.S. economy and held up remarkably well last year as the U.S.-China trade war ravaged manufacturing and sent the industry into recession.
Warning: The rate of decline for new business was the strongest in the history of the survey, dating back to October 2009, and total new orders fell for the first time in more than a decade, according to IHS Markit.
Reality check: Economists largely expect the negative impact of the coronavirus to recede after the second quarter, but IHS Markit chief economist Chris Williamson warned that it was not the only issue weighing on this month's readings.
"The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions."
"However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year."
But, but, but: Friday's reading was a flash estimate of the current month and IHS Markit, along with data provider ISM, will release a deeper look at February's manufacturing and services in early March.
2. Catch up quick
Fox has interest in acquiring ad-supported streaming service Tubi at a valuation near $500 million, while NBCUniversal is in advanced talks for Vudu, purchased by Walmart in 2010 for $100 million. (WSJ)
Intuit is close to making its largest ever deal, purchasing personal finance website Credit Karma for about $7 billion in cash and stock. (WSJ)
China has cut interest rates, ordered banks to boost lending and proffered other stimulus, but many private businesses say they can't access the funding needed to meet upcoming debt and salary payments. (Bloomberg Quint)
Wisconsin had the highest number of farming bankruptcies in a decade, and the number of dairy farms across the state has fallen by 49% over 15 years, while per-capita dairy consumption in the U.S. reached its highest since 1962. (The Guardian)
3. Brainard is the latest Fed official to bemoan low inflation
Fed governor Lael Brainard said that interest rates may need to stay low for some time to get inflation to the Fed's 2% target and argued in a speech Friday that the central bank needed "a different strategy."
"The current generation of central bankers faces a different core challenge than the last generation, with substantially smaller scope for cutting interest rates to buffer the economy and inflation that is low and relatively unresponsive to resource utilization."
"With trend inflation running below the symmetric 2 percent objective, there is a risk that inflation expectations have slipped. ... policy may have to remain accommodative for a long time to achieve 2 percent inflation following a period of undershooting. With the equilibrium interest rate very low, the Federal Open Market Committee can cut the federal funds rate by only about half as much as it has done historically to buffer the economy from recession."
"Today's new normal calls not only for a broader set of tools, but also a different strategy. We should clarify in advance that we will deploy a broader set of tools proactively to provide accommodation when shocks are likely to push the policy rate to its lower bound."
Why it matters: Brainard is considered one of the most influential members of the Fed's rate setting committee and is the latest to highlight too-low inflation as a problem for the central bank.
4. The yield curve makes its deepest inversion since October
The U.S. Treasury yield curve inverted again, with 3-month Treasury bills holding a higher yield (1.56%) than 10-year Treasury notes (1.46%).
- This is the second time the yield curve has inverted in a matter of weeks, and the third time in a matter of months. It's the deepest the yield curve has been inverted since Oct. 9.
Why it matters: Economists at the Fed call the 3-month/10-year inversion the "best summary measure" of economic downturn and a yield curve inversion has preceded every recession of the last 50 years within approximately six to 24 months.
5. Mom and pop investors splurge on stocks
Trading volume at online and discount brokers like TD Ameritrade and the recently acquired E*Trade has exploded over the past year, Bloomberg reports, with TD Ameritrade alone having seen million-trade days multiplying at a "record pace."
- So-called mom and pop retail investors are chasing the U.S. bull market via online brokerages, thanks largely to top brokerage firms cutting trading fees to zero.
Driving the news: "[D]aily average revenue trades ... have almost doubled to an all-time high since last September, data compiled by Sundial Research showed," per Bloomberg.
- "The latest leg of [retail trader] emergence times closely with October, when E*Trade, Charles Schwab and TD Ameritrade slashed commission fees to zero."
Details: At TD Ameritrade, there were 38 days when the amount of trades topped 1 million during the fiscal first quarter that ended Dec. 31, Steve Boyle, TD's interim president and CEO, told Bloomberg. That compares to 23 such days in all of fiscal year 2019.
- E*Trade's daily average revenue trades have increased 74%.
Sadie Tanner Mossell Alexander is considered America’s first black economist, even though few have ever heard of her.
- Alexander earned her doctorate from the University of Pennsylvania in 1921, and in 1945 she took President Franklin D. Roosevelt’s plan for a fully employed labor force and provided specific policy recommendations for implementing and financing it.
- Alexander was not a practicing economist because racial and gender discrimination denied her the opportunity to be employed as one, so she eventually became a lawyer.