Global markets landed in turmoil this week as the rapidly spreading coronavirus stoked fears over global growth and overshadowed a heavy slate of corporate earnings reports. Government officials in China and elsewhere emphasized they were tracking the virus and taking extra precautions to slow its spread, trying to calm nerves and prevent a full blown hysteria. By Friday though, global confirmed cases approached 10,000, surpassing the 2003 SARS outbreak, and the first confirmation of an asymptomatic transmission of the virus sent investors scurrying to the exit. Weak US manufacturing data only added to the concerns that global growth could be entering a precarious stage, as the effects of what the WHO declared a ‘public health emergency of international concern’, are yet to be felt. Several major airlines announced the cancelation of all flights servicing the Chinese mainland through early April. And late Friday afternoon, the Trump Administration announced more aggressive measures including limiting entry to foreign nationals who have recently traveled to China.
Stock markets came under significant pressure and risk aversion flows were prevalent across a variety of asset classes for much of the week. US Treasury yields slumped back towards the lows of last September and curve flattening resulted in portions of the curve re-inverting. Oil prices slid, sending WTI crude into the low $50’s and high yield corporate spreads continued to widen. Copper and other base metals slumped and the USD/CNY exchange rate moved back above the key psychological 7.00 level. Gold prices lifted along with the VIX which popped back above 19 for the first time since October. For the week, the S&P lost 2.1%, the DJIA dropped 2.5%, and the Nasdaq fell 1.8%.
In corporate news this week, Apple revenue and earnings handily beat estimates, with strength seen particularly in services and wearables. Microsoft crushed profit expectations and offered robust guidance as its cloud business gained traction. Boeing missed on its top and bottom line and noted $4B in abnormal production costs to be expensed as incurred, primarily in 2020, amid its ongoing 737 MAX woes. McDonald's reported a profit and revenue beat but saw US Q4 customer traffic decline. Tesla shares surged after a second straight blowout quarter, and the carmaker set a goal to sell over half a million vehicles this year. On Friday, Amazon gained $75B in market cap, joining the trillion-dollar valuation club, after smashing earnings expectations and announcing it has surpassed 150M Prime members. Facebook posted a modest beat, but investors saw warning signs on the horizon as costs and expenses continue to rise. Altria missed revenue estimates and took a charge on its disappointing investment in e-cigarette maker Juul. Auto parts supplier BorgWarner announced it would acquire Delphi Technologies for $3.3B to help shore up its power electronics product offerings. L Brands reportedly is exploring strategic options for its Victoria’s Secret division as founder Lex Wexner was said to be in talks to step down as CEO.
SUNDAY 1/26 *(CN) China National Health Commissioner Ma says appears that the coronavirus' ability to spread is getting stronger, virus is mutating and can be transmitted through human contact; total confirmed cases of infection in China is over 2,000 as of Sunday afternoon, with 56 deaths (CN) China has confirmed 2,744 cases of the coronavirus as of the end of Jan 26th (Sunday) and 80 deaths [vs 830 cases and 25 deaths as of Jan 23rd], China officials have extended the Lunar Year holiday to Feb 2nd from Jan 30th due to the impact of the virus
MONDAY 1/27 *(DE) GERMANY JAN IFO BUSINESS CLIMATE SURVEY: 95.9 V 97.0E; CURRENT ASSESSMENT SURVEY: 99.1 V 99.1E ARNC Reports Q4 $0.53 v $0.33 y/y, Rev $3.40B v $3.47B y/y LHA.DE Exec: seeing 'slightly subdued' situation regarding bookings to and from China due to coronavirus *(US) DEC NEW HOME SALES: 694K V 730KE (US) CDC Director Messonnier: still only 5 confirmed US cases of coronavirus, and 110 people under investigation; CDC is working on a plan for distribution of more test kits - conronavirus briefing WHR Reports Q4 $4.75 v $4.30e, Rev $5.38B v $5.53Be; Guides initial FY20 $16.00-17.00 v $16.19e (CN) China Updates on Coronavirus: Total cases in China at 4,515 v 2,744 at the end of Jan 26th; Death toll 106 v 80 yesterday - China press
TUESDAY 1/28 SAP.DE Reports Q4 EPS €1.82 v €1.51 y/y; Op €2.84B v €2.85Be; Rev €8.05B v €8.1Be MMM Reports Q4 $1.95 v $2.10e, Rev $8.11B v $8.13Be; Implements new global operating model and streamlined structure; To cut 1,500 jobs DLPH To be acquired in all-stock deal by Borgwarner; deal valued at $3.3B; Borgwarner announces $1B share repurchase program HUAWEI.CN To have limited role in 5G rollout in the UK as speculated; to have 35% cap in periphery of 5G network *(US) DEC PRELIMINARY DURABLE GOODS ORDERS: 2.4% V 0.3%E; DURABLES (EX-TRANSPORTATION): -0.1% V +0.3%E *(US) JAN RICHMOND FED MANUFACTURING INDEX: +20 V -3E (16-month high) UAL To suspend some flights to China beginning Feb 1st through Feb 8th; to cut some service to Beijing, Hong Kong, and Shanghai; suspensions to last for about a week (US) Congressional Budget Office (CBO) issues 10-year budget and economic outlook: sees US budget deficit at $1.015T in FY20; sees federal deficits at $1T per year for at least 11 years (US) Sen Maj Leader McConnell reportedly told GOP in closed door meeting that he does not have the votes to block impeachment witnesses - press
WEDNESDAY 1/29 066570.KR Reports FY19 (KRW) Net 180.0B v 1.47T y/y, Op 2.44T v 2.70T y/y, Rev 62.3T v 61.3T y/y GE Reports Q4 $0.21 v $0.18e, Rev $26.2B v $26.2Be; says on positive trajectory heading into 2020, despite areas of uncertainty BA Reports Q4 -$2.33 v +$1.73e, Rev $17.9B v $21.7Be; Confirms to cut 787 production to 12 jets/month CP Reports Q4 C$4.82 v C$4.69e, Rev C$2.07B v C$2.04Be *(US) DEC PENDING HOME SALES M/M: -4.9% V 0.5%E; Y/Y: 6.8% V 10.3%E (US) Association of American Railroads weekly rail traffic report for week ending Jan 25th: 485.3K, -7.1% y/y *(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 1.50-1.75%; AS EXPECTED; EXTENDS REPO OPERATIONS AT LEAST THROUGH APRIL MSFT Reports Q2 $1.51 v $1.32e, Rev $36.9B v $35.7Be TSLA Reports Q4 $2.14 v $1.62e, Rev $7.38B v $7.05Be (EU) EU aims to create a single European data market in order to counteract US tech giants' dominance; large online platforms may see new rules implemented to ensure open and fair competition - EU document
THURSDAY 1/30 ROG.CH Reports FY19 (CHF) Core EPS 20.16 v 19.96e, Core Op 22.48B v 22.65Be, Rev 61.5B v 61.95Be; Proposes to increase dividend to CHF9.00/share from CHF8.70 DBK.DE Reports Q4 Net -€1.48B v -€409M y/y, Pretax -€1.29B v -€319M y/y, Net Rev €5.35B v €5.30Be RDSA.NL Reports Q4 CCS EPS $0.37 v $0.40e, Adj CCS Net $2.93B v $3.2Be, Rev $85.07B v $80.99Be; intends to complete $25B share buyback program DGE.UK Reports H1 Net £1.87B v £1.98B y/y, Adj Op £2.5B v £2.43B y/y, Rev £7.2B v £6.91B y/y UNA.NL Reports FY19 Net €5.63B v €5.84Be, adj Op €9.95B v €9.94Be, Rev €52.0B v €51.0B y/y; initiates strategic review of global tea business *(DE) GERMANY JAN NET UNEMPLOYMENT CHANGE: -2.0K V +5.0KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E RDSA.NL CFO: 2020 looks to be challenging - post earnings comments *(EU) EURO ZONE JAN BUSINESS CLIMATE INDICATOR: -0.23 V -0.20E KO Reports Q4 $0.44 v $0.43e, Rev $9.10B v $8.91Be *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATE UNCHANGED AT 0.75%; AS EXPECTED *(UK) BOE JAN MINUTES: VOTED 7-2 TO KEEP POLICY STEADY (Saunders and Haskel remain as doves) VZ Reports Q4 $1.13 v $1.15e, Rev $34.8B v $34.5Be UPS Reports Q4 $2.11 v $2.10e, Rev $20.6B v $20.6Be *(DE) GERMANY JAN PRELIMINARY CPI M/M: -0.6% V -0.6%E; Y/Y: 1.7% V 1.7%E *(US) Q4 ADVANCE GDP ANNUALIZED Q/Q: 2.1% V 2.0%E; PERSONAL CONSUMPTION: 1.8% V 2.0%E *(US) Q4 ADVANCE GDP PRICE INDEX: 1.4% V 1.8%E; CORE PCE Q/Q: 1.3% V 1.6%E (US) Nevada reports Dec casino gaming Rev $1.06B, +5.8% y/y; Las Vegas strip Rev $591.8M, +4.5% y/y AMZN Reports Q4 $6.47 v $3.98e, Rev $87.4B v $86.0Be; Prime membership is over 150M worldwide (*Note: crossed 100M about 21 months ago) V Reports Q1 $1.46 v $1.46e, Rev $6.05B v $6.06Be; Authorized $9.5B share buyback program (2% market cap) *(CN) CHINA JAN MANUFACTURING PMI (OFFICIAL GOVT): 50.0 V 50.0E (6th month without a contraction)
FRIDAY 1/31 *Study documents first case of coronavirus spread by a person showing no symptoms - STAT News *(IT) ITALY Q4 PRELIMINARY GDP Q/Q: -0.3% V +0.1%E; Y/Y: 0.0% V 0.3%E CAT Reports Q4 $2.63 v $2.37e, Rev $13.1B v $13.6Be (BR) Brazil Dec Primary Budget Balance (BRL): -13.5B v -21.0Be; Nominal Budget Balance: -38.4B v -48.5Be (US) Atlanta Fed forecasts initial Q1 GDP growth at 2.7% (RU) Russia Energy Min Novak: Russia is prepared to meet with OPEC+ members in Feb (pushing meeting up from March); date is currently being discussed; Russia is ready to act if needed to rebalance oil market (US) HHS Sec Azar: Declares coronavirus presents a "public health emergency" in the US; under temporary measuers, travelers from China may be subject to screening, potential quarantine, or denied entry - White House press conf