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Wall Street Recovery Continues on China Stimulus Measures

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US FINANCIAL MARKET | US ECONOMY & POLITICS
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US FINANCIAL MARKET

Wall Street Recovery Continues on China Stimulus Measures

  • Gains in technology heavyweights helped Wall Street’s main indexes climb for the second day on Tuesday, with fresh intervention by China’s central bank calming investor nerves.
  • China injected 1.7 trillion yuan ($242.74 billion) via reverse repos on Monday and Tuesday, helping Chinese stocks reverse some losses and lifting world equities.
  • The stimulus boosted investor sentiment even as several economists cut their forecasts for 2020 global growth as the fast-spreading virus has hampered business operations in the world’s second largest economy.
  • The Chinese government has barred travel and asked companies to halt operations as it tries to stop the spread of the deadly virus that has killed more than 400 people and infected more than 20,000.
  • Fears about the economic impact of the coronavirus outbreak have overshadowed a largely positive fourth-quarter earnings season. About 70% of nearly half of the S&P 500 companies that have reported so far have surpassed earnings estimates.
  • But Alphabet slipped 3.4% after Google’s advertising business and new data about YouTube and Google Cloud broadly disappointed.

Alphabet shares fall as Google misses on sales, YouTube revenue disappoints

  • Alphabet’s new Chief Executive Sundar Pichai unveiled sales figures that investors have long demanded, but shares fell 5% as Google’s advertising business and the new data about YouTube and Google Cloud broadly disappointed.
  • Alphabet’s overall sales in the fourth quarter were $46.08 billion, up 17%, compared with an average estimate of $46.94 billion.
  • Google ad sales in the holiday shopping quarter were $37.93 billion, up 16.7% from the same period last year.
  • In a surprise move, Google provided financial information on some of its operations, for the first time disclosing revenue results in areas like YouTube and cloud computing.
  • The new YouTube disclosures showed ad revenue grew 31%, exceeding $15 billion in annual revenue in 2019.
  • Pichai also said YouTube, which has 2 billion monthly users, generated about $750 million in subscription and other non-advertising revenue, but did not reveal a figure for the year-earlier period.
  • Pichai said YouTube had 20 million paid subscribers between YouTube’s Music and Premium ad-free viewing packages, and separately had 2 million paid subscribers for YouTube TV.
  • Cloud is on track for $10 billion in revenue this year, Alphabet said, representing better-than-expected figures for the business.
  • For the fourth quarter, Alphabet’s total costs and expenses rose 18.5% from a year ago to $36.809 billion.
  • Alphabet’s fourth-quarter profit was $10.67 billion compared with the analysts’ average estimate of $8.787 billion.

Centene profit hit by higher medical costs, shares fall 5%

  • U.S. health insurer Centene posted a 13% fall in fourth-quarter profit on Tuesday, hurt by higher medical costs in its Obamacare business and a rise in flu-related claims, sending its shares down about 5% in trading before the bell.
  • Membership growth and higher revenue from premiums helped the insurer report a 14% rise in total revenue to $18.86 billion, above estimates of $18.43 billion.
  • The company said it added 1.07 million members to its health insurance plans in 2019, taking the total to 15.24 million.
  • Centene’s health benefits ratio, the amount it spends on medical claims compared with its income from premiums, worsened to 88.4% from 86.8% a year earlier. Analysts had expected a ratio of 87.60%.
  • Net income fell to $209 million in the quarter, from $241 million a year earlier.

Coronavirus Cases Rise Above 20,000 in China as Hong Kong Reports First Death

  • Macau planned to shut its casinos, and a technology hub near Shanghai unveiled severe restrictions on residents’ movements, the latest in a series of extreme measures governments have taken to combat the fast-spreading new virus.
  • The number of confirmed cases of the coronavirus rose above 20,000 on Monday, and Hong Kong reported its first death from the virus, which has killed at least 425, all but two of them in mainland China.
  • Meanwhile, the U.K. upgraded its travel warning, telling citizens who were in China to leave if they were able. Previously, the advisory had applied only to Hubei.
  • India said it had banned all Chinese citizens and others who had recently been in the country, from entering the country, and Taiwan said that it would refuse entry starting Friday to foreigners who had been to mainland China in the past two weeks.

Coronavirus to hit oil demand by around 0.5% in 2020: BP CFO

  • The global economic slowdown in the wake of China’s coronavirus outbreak is set to reduce global oil demand in 2020 by up to 0.5%, BP’s Chief Financial Officer Brian Gilvary said on Tuesday.
  • The drop in industrial activity and flight cancellations has so far hit oil demand by around 200,000 to 300,000 barrels per day (bpd), Gilvary told Reuters, after BP reported its fourth quarter results.
  • For the whole year, the slowdown will reduce consumption by 300,000 to 500,000 bpd, roughly 0.5% of global demand, according to Gilvary.
  • The impact in China has been more pronounced, reducing demand by around 1 million bpd, he added.

U.S. Pushing Effort to Develop 5G Alternative to Huawei

  • Seeking to blunt the dominance by China’s Huawei, the White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks.
  • The plan would build on efforts by some U.S. telecom and technology companies to agree on common engineering standards that would allow 5G software developers to run code atop machines that come from nearly any hardware manufacturer.
  • Companies including Microsoft, Dell and AT&T are part of the effort, White House economic adviser Larry Kudlow said.
  • The effort is in a preliminary stage and still faces many obstacles, including bringing together different companies with varying priorities.
  • Cellular networks use highly specialized technology that is mostly new to enterprise software companies like Microsoft and Dell.

Huawei, ZTE urge U.S. not to impose national security risk labels

  • Huawei and ZTE on Monday both asked the U.S. Federal Communications Commission (FCC) not to finalize its designation of the China tech giants as risks to U.S. national security.
  • In November, the FCC voted 5-0 to initially designate Huawei and ZTE as national security risks in a move that would bar their U.S. rural carrier customers from tapping an $8.5 billion government fund to purchase equipment.
  • The commission left the final determination to the FCC’s Public Safety and Homeland Security Bureau, which could determine not to finalize the risk designation.
  • Such a move would run counter to the Trump administration’s stance to date, after its blacklisting of Huawei in May sharply restricted the export of U.S. high-tech components to the company.

Justice Department’s Antitrust Chief Recuses Himself From Google Probe

  • The Justice Department’s chief antitrust enforcement official has recused himself from the department’s investigation into whether Alphabet’s Google is unlawfully suppressing competition.
  • The department said that as the probe progressed, Assistant Attorney General Makan Delrahim came to realize that he needed to recuse himself because of his past work in private practice.
  • Google was a one-time client. In 2007, Mr. Delrahim advised the search giant as it sought approval from the Federal Trade Commission to buy internet ad firm DoubleClick.

FAA Moves Toward Certifying Specific Drones for Package Deliveries

  • U.S. aviation regulators plan to craft new safety standards for specific unmanned-aircraft models, the biggest step yet toward eventually authorizing widespread delivery of packages by drones.
  • The Federal Aviation Administration’s proposal, disclosed on Monday in a Federal Register filing, is couched in dry bureaucratic language but amounts to a major policy and regulatory win for Amazon.com and other companies seeking to gain approval for various types of drones for small-package delivery fleets.
  • The FAA for the first time formally laid out a policy intended to vet the design and reliability of drones, similar to how it determines the safety of gliders and other light aircraft.

Pilots, flight attendants demand flights to China stop as virus fear mounts worldwide

  • Pilots and flight attendants are demanding airlines stop flights to China as health officials declare a global emergency over the rapidly spreading coronavirus, with American Airlines’ pilots filing a lawsuit seeking an immediate halt.
  • The United States has advised its citizens not to travel to China, raising its warning to the same level as those for Iraq and Afghanistan.
  • U.S. airlines, which have been reducing flights to China this week, were reassessing flying plans as a result, according to people familiar with the matter.
  • It is possible the White House could opt to take further action to bar flights to China in coming days, but officials stressed that no decision has been made.
  • The outbreak poses the biggest epidemic threat to the airline industry since the 2003 SARS crisis, which led to a 45% plunge in passenger demand in Asia at its peak in April of that year, analysts said.

FDA to hold public meeting on testing for asbestos in talc

  • For the first time in nearly 50 years, the U.S. Food and Drug Administration will examine asbestos testing for talc powders and cosmetics at a hearing on Tuesday.
  • Regulators are taking a closer look after finding asbestos, a known carcinogen, in several talc cosmetics and powders, including a bottle of Johnson & Johnson’s well-known Baby Powder.
  • Citing those FDA results, some U.S. lawmakers and consumer advocates have called for stricter safety regulations to protect public health.
  • In a written report, the government panel said the talc industry’s standard test methods have “long-recognized shortcomings in specificity and sensitivity.” 

 

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US ECONOMY & POLITICS

Iowa Democratic Caucuses Result? More Uncertainty

  • The results of Iowa’s Democratic presidential caucuses have been delayed because of “quality checks” during the reporting process, the state party said.
  • During a phone call early Tuesday morning, the party said it would release results “later today” but took no questions and provided few specifics.
  • Iowa Democratic Party officials say it wasn’t a hack or a crash of the organization’s phone app that it rolled out in the hope of tallying results more quickly this year.
  • In the face of the results radio silence, the candidates one-by-one went on TV to give rousing speeches and assure their supporters that they would go on to compete in next week’s New Hampshire primary.
  • The results tabulation meltdown immediately led Mr. Biden’s campaign to question the credibility of the process—and gave fodder to critics of the Iowa caucus system.

Democrats Move On to New Hampshire Without Clear Momentum From Iowa

  • The Democratic campaigns were quickly turning their attention to New Hampshire after an overnight caucus-reporting debacle in Iowa left the outcome there still unknown.
  • With the delay in announcing a winner in Monday night’s contest depriving any candidate from claiming momentum Tuesday morning, Democrats head to a state where four candidates have been bunched at the top in recent state polls.
  • Also complicating the forecast here, almost half of New Hampshire residents registered to vote identify not as Democrats or Republicans, but as “undeclared,” according to statistics kept by the secretary of state.
  • Both undeclared and Democratic registrants can vote in the nation’s first Democratic primary next Tuesday, making it difficult to predict which voters will turn out and which candidate will prevail.
  • Mr. Sanders led at 24%, topping Mr. Biden by 6 percentage points in a Boston Globe/WBZ-TV/Suffolk University poll of likely New Hampshire Democratic voters released late Monday.
  • Ms. Warren and Mr. Buttigieg polled in the low double-digits in that survey, which had a margin of error of plus or minus 4.4%.

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EUROPE & WORLD

China central bank says huge cash injections to stabilize market expectations, restore confidence

  • China’s central bank said on Tuesday that its huge liquidity injections through open market operations this week showed its determination to stabilize financial market expectations and restore market confidence.
  • The remarks were published on the official WeChat account of the People’s Bank of China (PBOC) after it injected a total of 1.7 trillion yuan ($242.74 billion) via reverse repos on Monday and Tuesday.
  • The central bank said the larger-than-expected liquidity injection should push money market and bond yields down, and reduce financing costs and ease financial pressure on small, micro businesses.

Sony raises outlook on strong sensor demand, warns of virus risks on supply chain

  • Sony raised its annual profit outlook on strong sales of smartphone image sensors after reporting a smaller-than-expected decline in quarterly profit, but it warned of an impact from the Wuhan coronavirus on its global supply chain.
  • For the quarter, profit dropped 20% to 300.1 billion yen, still beating the 271.07 billion yen average analyst estimate.
  • Sony’s sensor business continued to thrive as smartphone makers compete to adopt larger image sensors and multiple lenses on embedded cameras for improved picture quality, driving quarterly profit at the business by 62% to 75.2 billion yen.
  • Meanwhile, Sony’s gaming business saw profit fall 27% to 53.5 billion yen as sales of its PlayStation 4 continued to decline.
  • The Japanese entertainment and electronics firm raised its annual operating profit forecast by 5% to 880 billion yen ($8.1 billion), roughly in line with the 878.47 billion yen consensus.
  • Revenue is projected at ¥8.5 trillion ($78 billion), up 1% from the earlier forecast.

BP Raises Dividend, Boosts Divestment Targets

  • BP raised its dividend and said it had completed a $1.5 billion share buyback program in a sign of confidence in its growing oil and gas business on the last day in office for Chief Executive Bob Dudley.
  • The results were driven by a lower tax rate and stronger-than-expected performance of the oil and gas production unit, or upstream, which saw output rise in 2019 by 3.8% to 2.64 million barrels of oil equivalent per day, driven by a doubling of output from U.S. shale oil following the $10.5 billion acquisition of BHP’s assets in late 2018.
  • BP reported $2.57 billion in fourth-quarter underlying replacement cost profit, its definition of net income, exceeding analysts’ forecast of $2.1 billion in a company-provided poll.
  • BP announced an expanded plan to divest $15 billion of assets by mid-2021, having previously targeted $10 billion in asset sales by the end of 2020.

Sharp’s third-quarter profit up 38.5%, above estimates

  • Japan’s Sharp reported a 38.5% increase in profit thanks to gains at its smart appliance division and cost reduction efforts.
  • Sharp, which makes sensors, camera modules and screens for Apple’s iPhones, posted an operating profit of 29.4 billion yen ($270 million) for the October-December quarter, up from 21.2 billion yen a year prior.
  • The result compared with a 22.98 billion yen average estimate.
  • Sharp maintained its operating profit forecast for the year at 100 billion yen, versus a consensus estimate of 85.20 billion yen.

Electric future: Britain to ban new petrol and hybrid cars from 2035

  • Britain will ban the sale of new petrol, diesel and hybrid cars from 2035, five years earlier than planned, in an attempt to reduce air pollution that could herald the end of over a century of reliance on the internal combustion engine.
  • Britain has pledged to reach net zero emissions by 2050, but Greenpeace UK Head of Politics Rebecca Newsom said Johnson needed to take broader action than cleaning up transport.
  • Countries and cities around the world have announced plans to crack down on diesel vehicles following the 2015 Volkswagen emissions scandal and the EU is introducing tougher carbon dioxide rules.

Vodacom to launch 5G services in South Africa in 2020

  • Vodacom expects to offer 5G mobile services to its South African customers this year by using a network being built by another African operator Liquid Telecom, Vodacom Chief Executive Shameel Joosub said on Tuesday.
  • Liquid Telecom announced last month it was building a wholesale 5G network that would be available from early 2020, using its share of the 3.5 GHz spectrum required for 5G.
  • Liquid, which said its wholesale service would be available in major South African cities, did not say which technology supplier would be used to roll out its 5G network.

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TODAY in HISTORY

  • England proclaimed the formal end to the hostilities with the United States. (1783)
  • Roosevelt, Churchill, and Stalin met at the Yalta Conference. (1945)
  • The Massachusetts Supreme Court declared that gays had the right to marry. (2004)

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