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Good morning. The great interest-rate debate takes center stage in Davos, the European Central Bank is taking another look at inflation and China’s coronavirus is dominating investor sentiment. Here’s what’s moving markets.
They’re the defining feature of financial markets in our time: Ultralow, if not negative, interest rates. Last year’s fresh round of rate cuts won fans at the annual meeting of the World Economic Forum for stabilizing global growth and spurring stock rallies. But they also drew criticism from European bankers agitated by negative borrowing costs and some investors wary of looming asset bubbles. The forum wraps up in Davos, Switzerland today with a discussion on the global economic outlook that’s sure to touch on the rate debate, featuring ECB President Christine Lagarde, Bank of Japan Governor Haruhiko Kuroda and U.S. Treasury Secretary Steven Mnuchin, among others.
Speaking of Lagarde and the ECB, the central bank is reviewing how it measures inflation, a study that’s likely to raise pressure for a much-needed overhaul of the gauge that guided officials to impose negative interest rates on the region. Including home-acquisition costs — not just rents — in the euro-zone’s inflation gauge would likely boost the index by reflecting residents’ full housing costs. The move would follow similar moves by some of the ECB’s peers, including the U.S. Federal Reserve. While ECB officials will keep their ultra-loose stimulus settings — negative interest rates and monthly bond purchases — for the foreseeable future, the benign economic outlook is giving Lagarde and her colleagues the time to stop and assess their mission.
The spread of a novel coronavirus in China has dominated stock market sentiment lately, but it hasn’t yet triggered a full-blown global selloff. In China, where markets are shut today for Lunar New Year holidays, the CSI 300 Index lost 3.6% this week, but the S&P 500 is down only 0.1% for the week and the Stoxx Europe 600 Index has declined 1.1%. While the impact may yet be felt more broadly— China is restricting travel for 30 million people on the eve of the holiday — the World Health Organization decided that for now the outbreak isn’t a global health emergency. Still, keep an eye on luxury and travel-related stocks in the final trading session of the week. One bonus for airlines: The outbreak is pushing down oil prices. Meanwhile, here’s a look at the epicenter of the illness.
Bayer AG’s acquisition of Monsanto almost two years ago was pretty ill-timed. Almost immediately after the deal closed Bayer felt the full weight of U.S. lawsuits alleging that Monsanto’s Roundup weedkiller causes cancer, cutting Bayer’s share price in half from its all-time high. Now it looks like the German chemical company is about to put the episode behind it: Lawyers for some plaintiffs are discussing with the company deals that could lead to a total payout of about $10 billion, according to people with direct knowledge of the negotiations. Let’s see how investors feel about that price-tag for a settlement. The stock is already up 41% from its post-Monsanto lows, set last year.
Currency traders will be watching the U.K.’s purchasing managers’ indexes, which could be game-changers for the Bank of England’s interest-rate decision next week, which in turn could set the direction for both sterling and gilts. Traders across Europe are in for a busy morning. Purchasing managers' gauges for France, Germany and the euro area will influence the policy outlook there and may set the tone for bunds and the euro. Earnings also continue to trickle in today before next week’s flood. Ericsson AB just posted revenue in line with estimates. Carrefour SA’s fourth-quarter sales met estimates, though revenue in France was hurt by the strikes there. All things semiconductor-related may rally after Intel Corp. gave bullish quarterly and full-year revenue forecasts, driven by a surge in demand for chips that power large cloud-computing centers.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
- Jamie Dimon gets $31.5 million for JPMorgan’s knockout year.
- Goldman rule adds to the death knell for the all-white, male board.
- Google ban fails to stamp out short-term payday lending apps.
- Palm Beach real estate is on a hot streak — except near Mar-a-Lago.
- The next big thing in luxury cruising is a much smaller ship.
- China virus prompts filmmakers to cancel New Year premieres.
- George Soros says Facebook is conspiring to re-elect Trump.
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