The published number of death toll from the coronavirus outbreak has exceeded 1,000 with only 103 dead in Hubei province alone yesterday, a daily record.

The market however doesn’t seem to care much as it is focusing more on the number of new infections which is down almost 20% from the day before (from official Chinese numbers).

According to Chinese media, there have been hundreds of sackings of senior Chinese officials as they didn’t managed to contain the outbreak.

In Asia, all markets have closed on intraday highs (Japan closed) while European futures are indicated up 0.7%/0.8% with markets hitting new highs for the year. The amount of Central Banks liquidity and passive flows seems to help the market to defy any logic, a very difficult start of the year for active managers!

 

Let’s see some of the latest economic disruptions caused by the coronavirus. China pork prices are up 116% in January. Taiwan has temporarily banned entry of Hong Kong and Macau citizens. Some of the largest corporations in Singapore imposed staff to work from home for at least the next week. Airbnb has halted check-ins at all of its Beijing listings until March. Nissan has suspended output in Japanese Kyushu auto plant due to the supply shortage of automobile parts. British Airways has extended a halt to flights to mainland China until March 31. And so on and so forth.

The hit on Chinese and global growth will definitely be important. According to Capital Economics, the global economy might lose more than $280 billion in Q1 2020. It means that global GDP will not grow in QoQ terms for the first time since 2009.

 

An interesting research of a global broker, assessed that China air pollution is much lower now than historical averages, implying that human activities and industrial production have sharply slowed down. Usually the start of the year sees high pollution in China due to higher coal/fuel consumption for heating and industrial usage. Interestingly, in Guangzhou, Chengdu and Beijing which represent Eastern, Southern and Northern China, air pollution is 20-50% below historical average, meaning that human activities are running 50-80% below their potential capacity. The chart clearly shows that more than half China is locked down.

 

Pollution in Shanghai: current (yellow) vs 6y average (blue)

Taiwan’s exports plunged last month as the outbreak of the deadly coronavirus threatens to bring a burgeoning revival in the island’s overseas trade to a swift end. Overseas shipments fell 7.6% compared to the same month last year, official data showed Friday.

We might also see a new wave of corporate credit defaults as the highest monthly maturity in $ so far is now approaching in China. Over $2 billion comes due in March, that’s about a tenth of all China’s stressed $ hard-currency, those yielding at least 15%. Most of the bonds due next month are from developers, a sector battered by the coronavirus, with home sales collapsing.

 

Trump will propose a $4.8 trillion budget for 2021 which will not eliminate the federal deficit in the next 10 years (contrary to his previous promises) but it will add $5.6 Trillion over the next 10 years. Instead, the deficit has grown from $665 billion in 2017 to $984 billion in 2019, with US debt rising $3 Trillion, under Trump administration. Also, to underline, US total debt held by the public is $18 Trillion, projected to increase up to $31 trillion by 2031.

 

Clearly, Trump wants to keep boosting the American economy using tons of debt. It’s definitely one of his electoral point for the next presidential campaign.

In his budget, Trump proposes steep reductions in social safety net programs, environmental protection and foreign aids, while increasing spending for military, infrastructures, tax savings etc. Military spending is set to rise to $740 billion in 2021, while non-defense spending is lowered by 5% to $590 billion (below his previous agreement with Congress). The NASA will see its spending increased by 12% as Trump wants to bring the man back to the Moon asap. The border wall with Mexico would receive $2 billion in 2021 while a further 1 billion spending is saved for infrastructure spending. And of course, Trump wants to extend the tax cut (previous set to expire in 2025) because the rich must vote for him.

 

And where he wants to cut? According to his plan $4.4 trillion will be saved in the next 10 years, but of that, $2 trillion are savings from mandatory spending programs (for the poorer made under Obama administration). Just to give you an idea Trump wants to cut $135 billion in drug pricing reform, $292 billion from adding a work requirement to welfare programs (Medicaid etc.), $170 billion from changing student loan laws, $70 billion from disability benefits etc.

 

The race for the Democratic nomination has arrived in New Hampshire, which holds its first-in-the-nation primary today. A New Hampshire primary win is key for multiple Democrats. According to the latest tracking poll released Suffolk University/Boston Globe/WBZ-TV. It found Buttigieg has the support of 19% of likely Democratic voters in New Hampshire, up 8 points from Monday. He still trails Sanders (25%), who topped him with the popular vote in Iowa, but is ahead of Biden (12%) and Warren (11%).

 

Another interesting point in Politics, the dolphin and successor of Angela Merker, Annegret Kramp-Karrenbauer decided to step down as party leader, after local CDU parliamentarians elected a Minister President in the state of Thuringia, along with right-wing Afd, against her orders. She clearly lost control of the party and decided to resign. Although the big coalition in Germany (CDU, CSU and SPD) seems not to be at risk, the role of CDU is definitely weakening and higher fresh election in 2021.

 

Today’s Macro

Europe: UK GDP, UK Industrial/Manufacturing Production, UK trade balance

US: NFIB Small Business Optimism