Business Maverick

Business Maverick

February 25 : Five Things You Need to Know to Start Your Day

(Photo: Flickr/Marco Verch)

The sell-off in global stocks looks set to continue today in Asia. Hong Kong is mulling cash handouts in the next budget. And the U.S. is considering ousting Chinese journalists. Here are some of the things people in markets are talking about today. 

Shock Drop

A sell-off that’s wiped out global stock gains for the year is set to continue in Asia Tuesday amid concerns authorities around the world are struggling to keep the coronavirus from spreading. Havens including Treasuries, the yen and gold surged, and futures signal heavy losses when markets reopen in Japan after a holiday, with contracts in Australia and Hong Kong also pointing lower. U.S. stock benchmarks slumped more than 3%, with the S&P 500 Index dropping the most since February 2018, and European stocks also tumbled. Asia set the tone for the sell-off Monday, but the risk-off mood doesn’t look set to ease as the coronavirus epidemic spread to more than 30 countries, with Afghanistan, Bahrain and Kuwait reporting their first cases. The yield on 10-year Treasuries approached the 2016 record low, oil slumped, and and the yen jumped almost 1%, shattering doubts about its safe-haven status. All the while, Hong Kong stocks are trading at their lowest versus the world since 2004.

Why Now?

A lot of traders were sure last week that Apple’s China-related sales warning would hammer global markets. It didn’t. So it’s reasonable to ask why indexes have finally imploded. Here’s what traders said. Meanwhile, if the source of any of the resilience in U.S. stocks this year, up till now, has been retail investors fired up by zero-commission trading, markets are about to find out how sturdy that money is. The sell-off stands as the first major test for mom-and-pop investors who, emboldened by a brokerage price-war, have effectively doubled their trades in equities over the last several months. The surge in interest from a group notoriously known for chasing winners has helped fuel a rally in stocks from tech giants to small-caps. The shares they love, from Tesla to Plug Power, are now plunging, with a Goldman Sachs basket of retail favorites falling the most in nine months.

It’s Working

China’s unprecedented lockdown and restrictions blunted the coronavirus’s spread and averted hundreds of thousands of infection cases, according to the World Health Organization. While multiple revisions to the official data have raised questions about whether the decline in China’s new cases should be trusted, the 80% drop “is real,” WHO assistant director-general Bruce Aylward said at a briefing in Beijing. Still, the outbreak could gain ground again as schools reopen and work resumes, he said. Meanwhile President Xi Jinping seems to have settled on one takeaway above all others from China’s worst virus outbreak in modern history: Centralized control works and more is needed. Xi shared the conclusion in an unprecedented conference call with 170,000 officials Sunday. The virus is spreading further around the world: Italy reported at least six deaths, prompting Italians to panic-buy masks and food, while infections spiked again in South Korea and Iran. Afghanistan, Bahrain and Kuwait all reported their first cases.

Handouts in Hong Kong

As the Hong Kong government posts its first deficit in more than 15 years, all eyes will be on financial secretary Paul Chan’s budget release Wednesday and how he’ll tap cash reserves to stimulate an economy under pressure from months of unrest and the coronavirus outbreak. Anti-government protests drove the city into recession last year and economists now forecast another slump for 2020, spelling the first back-to-back annual contractions on record. Yet Chan holds a major card that he has largely yet to play: A fiscal reserve that stood at HK$1.12 trillion ($144 billion) as of Dec. 31. One factor that could inform Hong Kong’s response is the big packages announced elsewhere, such as by rival Singapore, which has pledged to post its biggest budget deficit since at least 1997 to combat the impact of the virus. While Hong Kong has historically espoused a conservative fiscal policy, the government has already earmarked an extra HK$30 billion in this fiscal year to help those affected by the virus outbreak.

History Repeats

A fourth sales tax shock is leaving thrifty Japanese consumers venting, with household finances squeezed by higher taxes and meager wage gains. Japan saw a 6.3% economic contraction in the last three months of 2019, fueling criticism of Prime Minister Shinzo Abe’s decision to carry out the tax increase at a vulnerable time for the economy. After factoring in the early signs of impact from the coronavirus, analysts now believe the economy is falling into recession. The logic behind the tax increase is that the government needs more money to provide pensions and health care for the growing legions of elderly, while reining in the developed world’s largest government debt pile. Those who oppose it argue a tax increase risks sapping the economy and undoing progress toward reflation. The downturn comes at a bad time for Abe, who is already losing support because of scandals and doubts over his government’s handling of the coronavirus outbreak.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.

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