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Wall Street Rebounds as U.S. Manufacturing Expands In January

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US FINANCIAL MARKET

Wall Street Rebounds as U.S. Manufacturing Expands In January

  • Wall Street main indexes rose 1% on Monday following their worst week in at least four months as Amazon and Nike gained and U.S. factory activity showed a surprise rebound.
  • ISM data showed the manufacturing sector expanded in January after five straight months of contraction, offering hope that a prolonged slump in business investment has probably bottomed out.
  • Also helping the mood was steps by China’s central bank to improve liquidity and relieve pressure on its economy from the impact of the coronavirus epidemic.
  • The Shanghai Composite Index closed 7.7% lower in its steepest drop since August 2015, with many stocks dropping by the maximum 10% that is allowed.
  • Investors are also closely watching Monday’s ballot in Iowa, a major electoral battleground, for insights into whether a candidate who supports a bigger role for government may beat out rival Democratic contenders.
  • The early voting state plays a key role in the run-up to the presidential elections in November as it can provide a vital boost to some candidates vying to take on President Trump.
  • The U.K. formally exited the EU Friday and entered into a transition period. Both sides fired opening salvos on Monday as they begin the complex negotiations that will determine the terms of their future relationship.

Coronavirus Closes China to the World, Straining Global Economy

  • China’s isolation amid the coronavirus outbreak, a rare freeze out for such a vital economic center, is rippling across the world.
  • Uncertainty over the virus—which has infected more than 17,000 people and killed 361— has disrupted world-wide trade and supply chains, depressed asset prices, and forced multinational businesses to make hard decisions with limited information.
  • The U.S., and governments in Europe and Asia are enforcing new regulations to block visitors from China and screen returning U.S. citizens, while major airlines suspended flights to the country and companies pulled out expatriate executives.
  • China’s health crisis is testing the entire global economic system, and placing unexpected and additional strain on the fragility of an extended boom. It’s also a test of China’s strength as a consumer—and the U.S.’s ability to step up as China lags.

Saudis Weigh Large Oil Cuts in Response to Coronavirus

  • Saudi Arabia is pushing for a major short-term oil production cut as it seeks to respond to the impact of China’s deadly coronavirus on crude demand, according to OPEC officials.
  • Representatives of OPEC and its allies are set to meet Tuesday and Wednesday to debate possible action after the outbreak originating in China, the world’s largest oil consumer, contributed to the biggest monthly crude-price drop in 30 years.
  • The group could then make a decision to reduce output at a possible meeting next week, OPEC officials said.
  • Under one scenario, the kingdom would lead a collective reduction of 500,000 barrels a day that would stand until the crisis is over, the OPEC officials said.
  • That would add to curbs of the same amounts agreed in December and bring the restrictions to 2.2 million barrels a day.
  • Another option under consideration would involve a temporary cut of 1 million barrels a day by the Saudis, aimed at creating a shock in oil markets, the officials said.

Apple Closes Chinese Stores, Corporate Offices Due to Coronavirus

  • Apple said Saturday it will close its stores and corporate offices in China until Feb. 9, a significant escalation in its response to the coronavirus outbreak gripping China and roiling global markets.
  • An Apple spokesman declined to comment further on how the outbreak was affecting the company’s business.
  • The Chinese government is requiring many factories to remain closed until Feb. 10, eliminating more than a week of planned production after Lunar New Year.
  • Apple also operates more than 40 stores in China and reported this week that it returned to revenue growth in the market behind increased iPhone sales.

Oracle adds cloud data centers in five countries, sets new 2020 target

  • Oracle said on Monday it had added new cloud computing data centers in five countries and aims to have them in 36 locations by the end of 2020, as it races with Amazon.com and Microsoft for market share.
  • Oracle’s goal is to have at least two “regions,” in each country where it operates, so that customers can have one primary region and one as a backup in case of disaster.
  • Oracle on Monday added regions in Jeddah, Saudi Arabia; Osaka, Japan; Melbourne, Australia; Montreal, Canada; and Amsterdam in the Netherlands.
  • Oracle’s cloud rivals, some with much bigger balance sheets, also continue to add data centers, with Amazon planning five more regions and 16 availability zones.

Worldline Strikes $8.6 Billion Deal to Create European Payments Giant

  • Fintech company Worldline agreed Monday to acquire rival Ingenico Group for €7.8 billion ($8.6 billion), the biggest global deal of the year so far, creating a giant in the fast-consolidating European payments sector.
  • The all-French deal comes as consumers are using their mobile phones and payment cards more to make purchases and manage their finances.
  • As demand grows, payments-processing businesses are under pressure to keep costs low, add customers and fund investments in new technology, at the same time as ensuring security amid greater regulatory scrutiny.

Goldman in talks with Amazon to offer small business loans

  • Goldman Sachs is in advanced talks with Amazon.com to offer small- and medium-sized businesses loans in the United States on the e-commerce giant’s lending platform, the Financial Times reported on Monday.
  • The project could go live as soon as March, the FT reported, citing two people familiar with the matter.
  • Goldman and Apple in March rolled out a virtual credit card to help build out the Wall Street bank’s consumer business, which also consists of its online bank Marcus.

 

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US ECONOMY & POLITICS

US manufacturing activity rebounds in January

  • U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders, offering hope that a prolonged slump in business investment has probably bottomed out.
  • The Institute for Supply Management (ISM) said on Monday its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December.
  • Economists had forecast the index rising to 48.5 in January from the previously reported 47.2 in December.
  • The ISM’s factory employment index rose to 46.6 last month from a revised reading of 45.2 in December, suggesting manufacturing payrolls could remain weak.
  • While just above the 50 level that signals expansion, the monthly advance was the largest since mid-2013.

U.S. construction spending posts first drop since June

  • U.S. construction spending unexpectedly fell in December, posting its first drop since June, as investment in both private and public projects declined.
  • The Commerce Department said on Monday construction spending decreased 0.2%.
  • Data for November was revised up to show construction outlays rising 0.7% instead of increasing 0.6% as previously reported.
  • Economists had forecast construction spending gaining 0.5% in December. Construction spending increased 5.0% on a year-on-year basis in December.
  • For all of 2019, construction spending fell 0.3%, the first annual decline since 2011, after rising 3.3% in 2018.

China seeks U.S. flexibility on some promises in the Phase 1 trade deal: Bloomberg

  • Chinese officials are hoping that the United States will agree to flexibility on some promises in the Phase 1 trade deal as China deals with the outbreak of coronavirus, a Bloomberg reporter said in a tweet on Monday.
  • The U.S.-China trade deal has a clause that the countries consult in the event of “a natural disaster or other unforeseeable event”, the reporter said.

Trump Administration Denying More Tariff Exemption Requests

  • Trump administration officials are granting fewer exemptions to tariffs on Chinese imports, with the approval rate recently plunging to 3% in the third round of levies from 35% in the first two, according to a Wall Street Journal analysis.
  • Requests for exemptions have been made by more than 4,500 companies, which typically say they have no viable or cost-effective alternatives to Chinese products.
  • Overall, more than 52,700 exclusion requests have been filed to the USTR, which has ruled on about 26,300 of those.
  • Tariffs were imposed in four tranches and are still in effect despite the Jan. 15 trade deal with China.

Iowa Caucuses to Kick Off Democratic Nominating Contest

  • Democratic caucus-goers in Iowa are preparing to deliver the first verdict of the 2020 presidential campaign, capping a flurry of activities from a large field vying to show they can defeat President Trump.
  • The Iowa results could winnow a Democratic field that still totals close to a dozen.
  • Candidates with weak showings in the first contest often have dropped out of the race shortly after the caucuses.
  • Candidates that don’t reach a 15% threshold on the first round of balloting will be deemed not viable in that precinct and their supporters are then free to move to a new candidate on the second and final round.

Bloomberg Offers Trillions in Tax Increases to Pay for His Agenda

  • Democratic presidential candidate Michael Bloomberg is proposing tax increases on corporations, top earners and estates that would make the wealthiest Americans foot the bill for programs in areas such as education, infrastructure and climate change.
  • In broad strokes, Mr. Bloomberg would reverse some of the 2017 tax cuts enacted by Republicans and President Trump and then raise taxes further, aiming to tax investment income at the same rates as labor income.
  • Some details are still fuzzy, but the campaign estimates that the plan would raise $5 trillion over a decade, an increase of more than 10% in federal revenue.
  • Unlike Bernie Sanders and Elizabeth Warren, he isn’t calling for an annual wealth tax or a return to a 35% corporate tax rate.
  • But his top income-tax rates on individuals would be higher than those proposed by former Vice President Joe Biden so far, and he is joining the Democrats’ move toward sharply higher taxes on the top 1% of households.

Americans Stuck to Their Views on Trump Through Impeachment Trial

  • President Trump is emerging from the four-month impeachment process with little sign of damage to his political standing, even though a majority of voters believes he carried out the acts that House Democrats charge in their articles of impeachment, a new Wall Street Journal/NBC News poll finds.
  • Some 46% of voters in the survey said the Senate should remove Mr. Trump from office at the end of the impeachment trial, while 49% said he should serve out his term.
  • The poll, in fact, found some signs that the president’s political standing has strengthened in recent months, due largely to a more energized Republican Party base.
  • A separate measure found that while half of the country holds a negative overall view of Mr. Trump, 43% of voters view him favorably—the largest share since his first month in office.

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EUROPE & WORLD

Virus fears wipe $393 billion off China’s stock market despite government support moves

  • Investors erased $393 billion from China’s benchmark index on Monday, sold the yuan and dumped commodities as fears about the spreading coronavirus and its economic impact drove selling on the first day of trade in China since the Lunar New Year.
  • A nearly 8% plunge on the Shanghai composite index was its biggest daily fall in more than four years. The Chinese yuan blew past the 7-per-dollar mark and Shanghai-traded commodities from palm oil to copper hit their maximum down limits.
  • More than 2,500 stocks fell by the daily limit of 10%.
  • Amid the selldown, the PBOC had injected 1.2 trillion yuan ($173.81 billion) into money markets through reverse bond repurchase agreements, the largest such move since 2004.
  • It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.

China January factory activity growth slows to five-month low: Caixin survey

  • China’s factory activity expanded at its slowest pace in five months in January, even as an outbreak of a new virus added to risks facing the world’s second-largest economy, a private survey showed on Monday.
  • The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) eased to 51.1 from 51.5 in December, missing expectations but remaining above the 50-mark that separates growth from contraction for the sixth straight month.
  • Analysts had expected a reading of 51.3.
  • New export orders slipped back into contraction after three months of expansion, while production and total new orders slowed but remained in expansionary territory.
  • Factories also shed jobs in January for the first time since October.

Huawei, Chinese chip makers keep factories humming despite virus outbreak

  • Some technology firms in China have maintained operations to manufacture parts and products despite government calls in various cities and provinces for companies to halt work to help stop the spread of a new coronavirus.
  • Chinese telecom giant Huawei said on Monday it had resumed production of goods including consumer devices and carrier equipment, and operations were running normally.
  • Other companies have also kept production running, in some cases even through the New Year, in a sign of the critical importance Beijing places on its domestic tech supply chain, a subject of friction with the United States
  • Yangtze Memory Technologies (YMTC), a state-backed maker of flash memory chips based in Wuhan – the city where the virus outbreak began – confirmed that it had not ceased production.
  • Meanwhile, Semiconductor Manufacturing International Corp (0981.HK) (SMIC) also kept production running through the holiday break.

Hong Kong Suffers First Annual Recession in a Decade

  • Hong Kong’s economy contracted by 1.2% last year, official estimates showed Monday, as global trade turbulence and months of antigovernment protests pushed the city into its first annual recession since the depths of the global financial crisis in 2009.
  • The government said real, or inflation-adjusted, gross domestic product shrank 2.9% year-over-year in the final quarter of last year, accelerating from a 2.8% decline in the preceding quarter.
  • Visitor arrivals, a bellwether economic indicator for the territory’s increasingly important tourism industry, were down 51.5% in December from a year earlier to 3.2 million people, official data show.
  • For the full year, arrivals were down 14.2% from 2018, largely driven by a 14% drop among mainland Chinese visitors, who account for some three-quarters of Hong Kong’s inbound tourists.

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TODAY in HISTORY

  • The 16th Amendment, establishing federal income tax, was ratified. (1913)
  • The U.S. broke off diplomatic relations with Germany. (1917)

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