Global manufacturing contracted the most since the financial crisis in 2009. Exxon and Chevron’s CEOs will likely face a grilling on Wall Street this week. And Australia may be the next market to start seeing negative yields. Here are some of the things people in markets are talking about today.
Another Gauge Down
Global manufacturing contracted in February by the most since 2009 as the coronavirus severely disrupted demand, trade and supply chains. The JPMorgan Global Manufacturing PMI fell 3.2 points to 47.2, snapping a three-month streak of expansionary readings, according to a report released Monday. Production plunged the most in almost two decades while the measure of new export orders also fell to the lowest since 2009. The report adds to signs that the global economy faces its biggest test since the financial crisis just as concerns about trade tensions had begun to ease. The Paris-based OECD warned Monday that economic growth will sink to decade lows as the coronavirus outbreak hammers demand and supply. How bad is it? Factory employment declined for a third straight month, with the rate of job losses the fastest since 2009. Output contracted in 15 of 31 economies, including China, Japan, Germany, France, Italy, Taiwan, South Korea and Australia. The figures reflect record weakness in Chinese manufacturing data, amid factory shutdowns from China to South Korea. Meanwhile, the virus is showing no signs of stopping its spread: Four more patients died in Washington state, a top U.S. disease expert said the coronavirus is likely becoming a pandemic as global cases reached 89,000, and the death toll rose to more than 3,000. It’s prompted several of the biggest U.S. banks to expand their travel curbs.
Stocks in Asia looked set to advance after U.S. equities surged the most in 14 months as investors gained confidence that policy makers would act in concert to offset any impact from the spreading coronavirus. Group of Seven finance ministers and central bankers will hold a teleconference Tuesday to discuss how to respond to the outbreak. Futures pointed higher in Japan and Sydney. The S&P 500 rallied 4.6%, the most since December 2018, with monetary policy makers from Japan to England joining the Federal Reserve in promising to take action to support their economies if needed. The yen slid and the offshore yuan climbed. Ten-year Treasury yields pared an early slide to trade little changed, while 30-year rates rose. Oil rallied on expectations that the OPEC+ alliance will deepen output cuts.
Australia may be the next market to see negative yields as the fallout from the coronavirus drives an unstoppable bond frenzy, according to BlackRock. Prolonged equity losses and monetary easing by the Reserve Bank of Australia can send the nation’s 10-year bond yield into negative terrain for the first time, according to Craig Vardy, head of fixed income for Australia at the world’s biggest money manager. “Right at the moment you’d be absolutely crazy to fight markets, I think, and particularly bond markets,”said Vardy. “In a world of epidemic, in a world of panic, flight to safety, where are you still going to make money?” Bond yields from the U.S. to Australia have dropped to record lows after the Federal Reserve said Friday that it’s ready to ease if the American economy needs support. Meanwhile, global policy makers are seeking to reassure markets that they are ready to respond to the outbreak as the world teeters on the edge of global recession, which is aligning with analyst expectations: Goldman Sachs predicted the Federal Reserve will cut rates by half a point and money markets are anticipating a 25 basis-point reduction from the Bank of England this month.
Exxon Mobil and Chevron will face a grilling from Wall Street this week on one metric that used to be their badge of honor: Returns on capital. It wasn’t always like this. Back in the early 2000s, the U.S. oil explorers were getting around 20%. Today, it’s less than half that, even with crude prices at a similar level. A decade of poor returns isn’t the only dark cloud hanging over both companies as they prepare to hold investor meetings in New York. Concerns over climate change and the future of fossil fuels loom large over the energy industry. More immediate still are worries about the impact of the coronavirus, which have pushed Brent oil down to $50 a barrel and sent Exxon’s shares to a 15-year low. So far, the two U.S. energy giants have staked out diverging strategies. Exxon Chief Executive Office Darren Woods plans to spend his way to a better place through a $35 billion-a-year investment program, while Chevron boss Mike Wirth is trumpeting the virtues of shale oil from the Permian Basin, combined with cutting costs across the business. These are “important meetings for both companies” said Doug Terreson, a New York-based analyst at Evercore ISI. Here are five things to watch for.
The Trump administration ordered four Chinese state-owned news outlets to cut their Chinese staff in the U.S. by about 40%, part of a broader response to Beijing’s restrictions on American journalists including its expulsion of three Wall Street Journal reporters last month. Starting March 13, the four outlets will be allowed to employ a combined 100 Chinese citizens in the U.S., down from about 160 now, two State Department officials told reporters Monday on condition of anonymity. The officials insisted that the reductions weren’t expulsions, though the 60 or so employees will almost certainly have to leave the country. The outlets affected by the move are Xinhua News Agency, China Global Television Network, China Radio International and China Daily Distribution. A fifth, Hai Tian Development USA, is also included under the cap but won’t have to cut staff because it has only two Chinese employees on its payroll in the U.S.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
A corridor to nowhere is showing how China’s Belt and Road dreams are shrinking. How a $7 billion dispute helped topple Mahathir’s “New Malaysia”. Can we get a vaccine early? How the rich are preparing for an outbreak. Biden gets a boost from Klobuchar and Buttigieg before Super Tuesday. Indian Prime Minister Narendra Modi considers giving up his social media account. Luxury real estate takes a hit as Chinese money stays at home. How the massive pool of Democratic presidential hopefuls shrank to a handful of front-runners. Panic buying spurs investors to stock up on food shares.
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