Germany forecasts worst recession since at least 1950

The German government expects the fallout from the virus outbreak to send the economy into its worst recession since the aftermath of WWII

  • Forecasts GDP to fall by 6.3% in 2020
  • Forecasts GDP to grow by 5.2% in 2021
The above is the latest projections by the economy ministry, and that shouldn’t come as much of a surprise given the economic hit across the globe – not just in Germany.
This hinges on some kind of U-shaped or V-shaped recovery but the issue is we’re not even going to be sure how the next quarter is going to look like.
The focus right now is on easing restrictions but what happens if there is a secondary outbreak or the infection rate starts rising again? The latest report from Germany is that the virus’ reproduction rate is back up to 0.96 from 0.70 as of Monday.
If that goes back above 1.00, will the government impose another round of restrictions? What happens if this continues all the way into Q3 or even Q4?
It is very much play by ear at this point and the same applies to every country in the world.

The Brazilian real hits all time low as it’s the worst emerging market currency this year

Hard times in Brazil

The market seems to love the idea of opening up while hating the idea of not closing at all.
USD/BRL hit a record today at 5.50. The Brazilian real is now down 26.7% on the year with hardly a bounce off the bottom.
Hard times in Brazil
What’s even worse is that the Brazilian bovespa is one among the world’s worst performing equity markets — possibly the worst. In BRL terms it’s down 31% and in USD terms it’s down 49.3%.
The latest leg down in the currency comes on increasing bets of rate cuts and proposed amendments to the constitution to allow the central bank to buy government and corporate bonds.

This is when the world realizes what’s really happening in oil

This is when the world realizes what’s really happening

I’ve been warning for weeks that oil is a negative-yielding asset. If you have it and don’t want it, it’s a big problem to get rid of it.
This is when the world realizes what's really happening
People just couldn’t comprehend how a commodity could go negative. But natural gas went negative last year at some delivery points. Before bond yields went negative people also couldn’t comprehend it. They said it was impossible. Now it’s normal.
Here’s the bottom line: When there is more oil than people can store, you have to pay someone to get rid of it.
Obviously, negative $33.30 per barrel is when someone get stuck and implodes.
There are some massive margin calls ongoing right now. Some funds have imploded and who knows what they might take down with them.
Crude is down 330% today

There is no plan for a ‘dramatic’ US economic plan

The promise is going to be tough to deliver

President Trump helped to reverse market sentiment late yesterday when he promised to unveil “dramatic” and “major” economic policies today.
CNBC’s Eamonn Javers reports:
I’m told that there is no finalized economic plan inside the White House now. As of last night, I was told: “it’s not there right now.” A lot of details to work out.
Trump mentioned a payroll tax cut and that’s a bit of a trap for Democrats. They’re pushing for paid sick leave but Trump and Republicans will try to bundle in more. If/when Democrats reject it, Trump will frame it as Democrats being against a tax cut.
There’s also this from Politico’s Jake Sherman:
The promise is going to be tough to deliver

What’s urgently needed is something on paid sick leave to slow this down, rather than planning for economic impacts. Putting in a tax cut and politiking is going to drag it out and eventually cost more.

The Richest Man in Babylon Rules

The Richest Man in Babylon is a great little personal finance book set as an ancient fictional tale that explains the ‘The Seven Cures to a Lean Purse’ and ‘The Five Rules of Gold’.

The Seven Cures to a Lean Purse:

  1. Start thy purse to fattening. Pay yourself first. Save money before you pay any bills.
  2. Control thy expenditures. Don’t spend every penny you make or you will be broke no matter how high your income becomes.
  3. Make thy gold multiply. Invest capital in assets that go up in value.
  4. Guard thy treasures from loss. Your number one priority is to keep your investment capital safe from loss.
  5. Make of thy dwelling a profitable investment. Buy a home in the right location as a hedge against inflation and to create equity and ownership over the long term.
  6. Insure a future income. Convert your earned income into assets that can create future case flow.
  7. Increase thy ability to earn. Grow your earning power through education, building skills, gaining experience in a field, or promotions to higher levels of responsibility.

The Five Laws of Gold:

  1. Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family. Save 10% of your income each time you are paid and convert it to investment capital.
  2. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field. Invest your capital for growth and compounding.
  3. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling. Find a successful model or system to copy for investing your money.
  4. Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep. Never put money in something you don’t fully understand.
  5. Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment. This fastest way to go broke is to try to get rich quick.

the richest man in babylon

Economic data coming up in the European session

Good day, everyone! Hope you’re all doing well as we look to get things going in the session ahead. It’s been a tug of war in the battle of risk since trading yesterday as markets are once again now appearing to shrug off fears concerning the coronavirus outbreak.

Major currencies are trading keeping more calm with the aussie leading gains after a slightly better-than-expected Australian Q4 CPI data earlier. That said, the trimmed mean reading – RBA’s preferred measure – still remains below its target band of 2-3%.
Looking ahead, it is going to be all about the risk mood once again with little notable data releases in the European morning. But with Apple earnings keeping investors hopeful, perhaps the situation will be more calm in the hours ahead.
As such, expect coronavirus headlines to continue to dominate proceedings before we move on to the Fed later today and more key tech earnings in Wall Street.
0700 GMT – Germany December import price index
Prior release can be found here. A proxy indicator of price pressures in the German economy. A minor data point.
0700 GMT – UK January Nationwide house prices
Prior release can be found here. A general overview of housing market conditions in the UK economy. Not a major release by any means.
0700 GMT – Germany February GfK consumer confidence
Prior release can be found here. An indication of consumer morale towards the German economy, which has been keeping more subdued lately. Expectation is for the reading to reflect similar sentiment in the early stages of the year.
0745 GMT – France January consumer confidence
Prior release can be found here. A general read of confidence towards the French economy, which has been holding up decently – but not suggestive of anything stellar; which mirrors the economic performance of the country since last year.
0900 GMT – Eurozone December M3 money supply data
Prior report can be found here. A gauge of credit conditions in the euro area economy, which continues to be holding up well despite economic concerns. A minor data point
0900 GMT – Switzerland January Credit Suisse investor sentiment
Prior release can be found here. The reading measures analysts’ expectations on the Swiss economy and other economic expectations over the next 6 months. Low-tier data.
1200 GMT – US MBA mortgage applications w.e. 24 January
Weekly US housing data, measures the change in number of applications for mortgages backed by the MBA during the week. Not the biggest of data points, but a general indicator of the housing sector sentiment.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

China – US trade talks update – phase 1 signing coming on January 15 (maybe)

OK, probably rather than maybe but hey, we’ve been hoodwinked on this trade deal business over and over again.

The latest is (good idea to update this after the long break):
  • A Chinese trade delegation is heading to Washington for a January 15 signing
  • plan is to sign the first phase of the trade deal with the US
  • Vice Premier Liu He will lead the delegation
  • Will arrive in Washington on the 13th (thankfully that’s not a Friday, eh?)
So, for the rest of 2020 we can look forward to tension over the next phase (more soybeans?)

Front page of the FT Thursday: EU doubts on deadline to ‘get Brexit done’

Boris has said time and again he is taking the UK out deal or no deal

I do not see where there is room for doubt now he has the numbers in parliament.
Anyway, front page:
Boris has said time and again he is taking the UK out deal or no deal

FT reports that the EU may give the derivatives industry and extension on Brexit

Financial Times says the European Union is readying moves to offer an extra year to the financial derivates industry to prepare for Brexit

  • Valdis Dombrovskis, vice-president of the European Commission, said on Friday that contingency plans for accessing UK-based clearing houses would have to be extended beyond the current March 2020 end date because the EU financial services industry would not have alternatives in place in time.
That’s the in a nutshell version of the report – here is the link for more (FT may be gated)