Five Things You Need to Know to Start Your Day
The world is watching to see if China’s drastic quarantine measures actually worked, Tesla shares skyrocket to another record and U.S. President Donald Trump is considering pulling out of another trade pact — worth $1.7 trillion. Here are some of the things people in markets are talking about today.
In the last two weeks, China locked down some 50 million people in more than a dozen cities to try and stop the new coronavirus that has sickened thousands. It may take as long as 14 days for the flu-like symptoms of the virus to appear. Soon, China will be finding out if the largest mass quarantine in history has worked, or if undiscovered cases have quietly dispersed and seeded a far wider epidemic. The travel restrictions began in the 11-million-person city of Wuhan on Jan. 23, halting air and rail travel, buses, subways and car services. The aggressive plan was aimed at keeping the disease mostly in Hubei province, but experts are also trying to assess whether a critical mass of people left Wuhan and Hubei before the travel restrictions were put in place. Their early analysis suggests there were about 10 million trips to Wuhan from other cities, and 12.5 million trips from Wuhan to elsewhere. Meanwhile, the number of infected cases has now topped 20,600.
The rally in risk assets was set to gather pace Wednesday with stock futures in Asia climbing following a strong session for U.S. equities. Treasuries sank amid speculation the global economy can weather the impact of the coronavirus. The S&P 500 Index soared the most since August, up 1.5%, and futures in Japan, Hong Kong and Australia all pointed higher, indicating a second day of strength for Asian shares. The Nasdaq 100 hit an all-time high, with U.S. technology stocks now having recovered all the losses sustained in the recent virus-related sell-off. European and emerging market equities also rallied, while the offshore yuan advanced. Haven assets from Treasuries to the yen and gold all retreated and elsewhere, West Texas crude oil closed below $50 a barrel for the first time in a year amid concern the coronavirus will crimp demand.
The Federal Reserve permanently banned former Goldman Sachs Group banker Andrea Vella from the industry over his alleged involvement in the 1MDB scandal as the fallout reaches higher into the firm’s ranks. The Fed’s order announced Tuesday said Vella, a former co-head of investment banking in Asia, failed to inform Goldman that a businessman who’s allegedly the fraud’s mastermind was involved in 1MDB bond offerings that the bank handled in 2012 and 2013. The U.S. Justice Department has criminally charged other former Goldman employees, including Tim Leissner, who pleaded guilty. Vella agreed to the Fed’s order without admitting or denying wrongdoing, and he’s slated to leave Goldman, according to a person briefed on the matter. The 1MDB conspiracy, in which a global cast of characters is accused of looting billions of dollars from the Malaysian government, has been the biggest scandal in almost a decade for Goldman Sachs, which is still in talks to settle regulatory and Justice Department probes.
Within minutes of the stock market’s open on Tuesday, shares of Tesla shot up 17%. Which feels extraordinary, except for the fact that they gained more the previous day — 20% — and also surged 10% one day last week and 7% and 10% the week before that. All told, the stock is now up 122% this year, giving the electric-vehicle maker a market value greater than that of General Motors, Fiat Chrysler and Volkswagen combined. There is plenty of wonder and awe on Wall Street about the rally — no other stock on the Nasdaq 100 is even up a quarter as much in 2020 — but few concrete explanations as to what’s driving it. Theories abound, including many of the tried and true: It’s the result of CEO Elon Musk delivering record revenue and his fourth quarterly profit in six periods; or it’s a short squeeze; or it’s the opening of a key new factory in China; or it’s an extreme case of FOMO sweeping across the investor community. Or it’s a combination of all of the above. There is another school of thought emerging, though — that the long-held assumption that legacy automakers will catch up to Tesla in the electric-vehicle market is wrong. Musk may have further to go yet.
The U.S. is mulling a plan to withdraw from another pact. This time, it’s global, it’s worth $1.7 trillion in government contracts, and it may anger close allies during a delicate moment for trade. Officials in President Donald Trump’s administration are circulating a draft executive order that would trigger a U.S. exit from the World Trade Organization’s Government Procurement Agreement, or GPA, if the pact isn’t reformed in line with American views, according a person familiar with the matter. A spokesman at the office of the U.S. Trade Representative didn’t immediately respond to emails seeking comment. The purpose of the GPA is to open government procurement markets to foreign competition, and to help make public purchasing more transparent. An American withdrawal would create chaos for foreign companies that bid for access to the U.S.’s $837 billion public procurement market and complicate nascent trade talks Washington is planning with the U.K. and European Union. It could also pose problems for Canadian Prime Minister Justin Trudeau, who still needs to broker deals with his political rivals to ensure ratification of the U.S.-Mexico-Canada Agreement; Canada is the only signatory of the updated Nafta deal that still needs to ratify the free-trade accord.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
- A top U.S. partner at SoftBank’s $100 billion technology fund is stepping down.
- China’s $1.7 trillion stranglehold on shadow banking loosens in the wake of the coronavirus.
- Why Indonesia is shifting its capital from Jakarta.
- Nomura has begun hiring wealth managers in virus-stricken China...
- … While Macau has asked its casinos to suspend operations to curb the spread.
- The biggest buyout fund in Taiwan is eyeing ageing tycoons for deals.
- Instagram brings in more than a quarter of Facebook sales.
©2020 Bloomberg L.P.