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The ECB surprised markets Thursday with dramatic cuts to its forecast for the European economy, pushing government bond yields lower and driving down the euro. Here are some of the things people in markets are talking about.
Draghi Injects Stimulus, Slashes Forecast
The European Central Bank cut its economic forecast Thursday by the most since it embarked on quantitative easing, and as a result, forged ahead with a new round of stimulus to shore up growth. ECB President Mario Draghi said the euro-zone economy will now expand only 1.1 percent this year, a drop of 0.6 percentage points from the forecast given out just three months ago. A package of assistance, from new loans for banks to a longer pledge on record-low rates, is intended to expand the institution’s existing stimulus, he said. “The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi told journalists in Frankfurt. “The risks surrounding the euro area growth outlook are still tilted to the downside.”
Stocks Slide After ECB
Shares in Asia looked set to stumble out of the gate after a drop in tech stocks helped send U.S. equities to their longest losing streak this year. The ECB’s grim economic forecasts reinforced concerns that global growth is slowing, fueling the decline. The euro fell to the lowest since 2017. The S&P 500 Index sank for a fourth day, with Amazon, Microsoft, Apple and Facebook the biggest drags. The gauge closed just below the closely watched 200-day moving average of 2,750 that has provided support in the past. Government bonds surged, with the yield on Germany’s 10-year notes reaching the lowest since 2016. The dollar climbed for a seventh day.
Tesla Snags China Loans
Tesla secured as much as $521 million in loans from Chinese banks to build a vehicle and battery factory in the country, putting the car maker a step closer to producing Model 3 sedans at its first overseas plant. Tesla also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as $700 million. After years of negotiations with Chinese authorities to become the first foreign automaker to wholly own a manufacturing facility in the country, Tesla broke ground on the outskirts of Shanghai on Jan. 7. Musk has said the company plans to start battery and Model 3 production at the factory by the end of the year.
Bass Still Bearish the Yuan
The “strongest ever” currency deal, as U.S. Treasury Secretary Steven Mnuchin has dubbed it, hasn’t shaken the resolve of longtime China bear Kyle Bass. Any provision for China to keep its currency stable as part of a trade agreement that’s in the works will fail to support the yuan against the dollar, according to the Hayman Capital Management founder. The firm entered its short bet on the offshore yuan in 2015. And Bass is staying the course even as some Wall Street banks revise forecasts to predict strength in the Chinese currency, which is outperforming almost all its counterparts across Asia in 2019. Bass says it’s just a matter of time before China’s darkening economic picture changes the whole narrative, spurring a weaker yuan and forcing policy makers to eat into foreign-exchange reserves to support it.
Amazon Purges Suppliers
Amazon.com abruptly stopped buying products over the past two weeks from many of its wholesale vendors, encouraging them to instead sell their products directly to consumers on Amazon’s marketplace. It’s the company’s latest move to boost profits at the core e-commerce business, even if that means disrupting relationships with longtime suppliers and potentially limiting customer choice. Thousands of vendors are affected, according to estimates from consultants who help clients sell on Amazon. Pushing suppliers onto the marketplace -- rather than selling products itself -- lets Amazon offload the risk and cost of purchasing, storing and shipping the merchandise. Instead, the company can charge suppliers for these services and take a commission on each transaction, which is much more profitable.
What we’ve been reading:
This is what caught our eye over the last 24 hours.
- Chinese tourism boom that propped up luxury brands is faultering.
- The super rich are being scammed on their private jets.
- Emerging markets may be the trade of the decade.
- Huawei uses Trump-linked firm to say U.S. defies the rule of law.
- China exodus is exacerbating Australia’s property slump.
- The mastermind behind Ghosn’s dramatic bail release and disguise.
©2019 Bloomberg L.P.