Analysis | The Finance 202: Coronavirus is already disrupting the economy. Look at West Coast ports. - The Washington Post

THE TICKER

Joe Brusuelas, chief economist for the consultancy RSM, was landing in Seattle about noon last Thursday when he noticed something odd from his plane window: There was only one ship in the city’s normally bustling port, and only one other ship actively offloading containers at a dock.

Conversations with local business owners after he landed confirmed his suspicions, later backed up by data reflecting activity at West Coast ports: Fallout from the spread of the coronavirus in Asia is compounding a lingering hangover from the U.S.-China trade war, crimping the flow of goods from across the Pacific.

Which is to say that while the disease has yet to bloom into a full-scale public health crisis in the United States, the leading edge of the economic disruption it could soon wreak has already arrived on our shores.

Zooming in on Southern California, Brusuelas found that shipping container traffic both coming and going from the ports of Los Angeles and Long Beach has been sliding at an average rate of 5.7 percent a month since the beginning of last year:

And that portends darkly for broader economic growth. “These Southern California ports are the major artery for goods from Asian trading partners and underlie a substantial portion of total U.S. economic activity,” he writes in a note. “A drop or increase in shipping activity would be expected to presage the direction of the U.S. business cycle.”

Investors woke up to the threat this week, with the S&P 500 continuing a steep three-day slide Wednesday by dropping another 0.5 percent. It has shed 8 percent over the last week, wiping out more than $2 trillion in wealth.

The stock market turmoil in turn has seized the attention of President Trump, who views the sell-off as a threat to his reelection and has railed about it to aides. He convened a news conference Wednesday evening aimed at calming nerves on Wall Street and beyond by naming Vice President Pence to coordinate the federal response.

Trump’s performance failed to allay concerns. As he was declaring a “very low” risk to Americans that “could be just one or two people over the next short period of time,” The Post broke the news that someone in Northern California became the first patient to test positive for the virus without traveling abroad or coming into contact with another known infected person. Futures for U.S. stock indexes turned negative.

From Bloomberg News’s Joe Weisenthal:

Markets keep going lower after Trump’s press conference and news of the first U.S. coronavirus without known links to other cases https://t.co/kw1xv5j5Lq pic.twitter.com/DCS9d8vmp2
— Joe Weisenthal (@TheStalwart) February 27, 2020

The new California case brought the number of the confirmed infections in the United States to 60. And Trump’s news conference “quickly devolved into campaign-style attacks on Democrats, predictions of a stock market rally and self-congratulatory assessments of his handling of the crisis,” Toluse Olorunnipa and Josh Dawsey write.

Trump said the stock market — “something I know a lot about” — sold off because investors were spooked by the performance of the Democratic candidates at their latest presidential debate, which took place Tuesday night after the worst of the market carnage.

“I think they look at the people you watched debating last night, and they say if there’s even a possibility that could happen, I think it really takes a hit because of that,” he said. “And it certainly took a hit because of this, and I understand that also because of supply chains and various other things. And people coming in. But I think the stock market will recover. The economy is very strong. The consumer is the strongest it's ever been.” See him here:

The market rout could shake that consumer confidence, which is already showing signs of softening — one way the virus could begin to weigh on the broader economy. “The American consumer really is the firewall between an expanding economy and a recession,” Moody’s Analytics chief economist Mark Zandi tells Reuters’s Jonnelle Marte. Moody's now sees a 40 percent chance the coronavirus evolves into a global pandemic that induces a recession in the U.S. and around the world.

Meanwhile, major corporations are feeling the strain from the supply chain disruptions Brusuelas saw in evidence from his plane window. “Some American companies say they could lose as much as half their annual revenue from China if the coronavirus epidemic extends through the summer, as businesses struggle to get boots back on the ground amid travel restrictions and shortages of basic protective gear,” the Wall Street Journal’s Julie Wernau reports. “Nearly half of U.S. companies in China said they expect revenue to decrease this year if business can’t return to normal by the end of April, according to a survey conducted Feb. 17 to 20 by the American Chamber of Commerce in China… One fifth of respondents said 2020 revenue from China would decline more than 50% if the epidemic continues through Aug. 30.”

Some big corporate names are detailing their virus-induced pains:

Companies are cutting business travel amid coronavirus: Nestle SA told its nearly 300,000 employees to suspend all international company travel until March 15 and to also slash domestic trips, making it the latest company to rein in such excursions and begin making contingency plans for remote work, the Wall Street Journal’s Te-Ping Chen, Saabira Chaudhuri and Rachel Feintzeig report.
Microsoft announces its revenue will slip: The company said sales this quarter would drop due to supply chain disruptions in China from the virus.
Papa John’s shares tumble: Shares in the company dipped more than 10 percent after its CEO said they had temporarily closed 50 franchise stores in China due to the coronavirus, CNBC’s Kate Rogers reports.
Amazon adds CDC notice to products: Users searching for coronavirus-related items on Amazon will now see a notice directing them to the Centers for Disease Control, the latest step the tech giant has taken to combat sellers adding misinformation about a product’s use in protecting or curing covid-19,CNBC’s Annie Palmer reports. (Amazon CEO Jeff Bezos owns The Washington Post)

“We’re seeing the tip of the spear in real time, and we will see much broader slowdown in two or three weeks,” Brusuelas tells me. “It’s time for financial market participants to speak up, and policy experts to speak up, and even for the Fed to tacitly signal to the administration that they need to begin to act.”

MARKET MOVERS

— Yellen: Virus could tip U.S. into recession. Bloomberg News's Sarah McGregor: “Former Federal Reserve Chair Janet Yellen said depending on how widely the coronavirus spreads, the economic impact could have a significant impact on Europe and veer the U.S. toward a recession. ‘We could see a significant impact on Europe, which has been weak to start with, and it’s just conceivable that it could throw the United States into a recession,’ Yellen said Wednesday at an event in Michigan. ‘If it doesn’t hit in a substantial way in the United States, that’s less likely. We had a pretty solid outlook before this happened -- and there is some risk, but basically I think the U.S. outlook looks pretty good.’”

Kevin Warsh: Fed should respond now. “A central bank’s primary job is to offset major disturbances to the economy," the former Fed board member writes in a WSJ op-ed. “Today, the novel coronavirus is a material risk to the economy. It represents an unexpected shock, and the Federal Reserve should lead the world’s central banks in taking immediate action.”

Trump renewed his criticism of the Fed in his press conference. Via my colleague Heather Long:

Trump bashes the Federal Reserve during his #coronavirusus press conference
“I disagree with our Fed.”
“We are the greatest in the world. We should have the lowest interest rates in the world.”
[Factcheck: low/negative interest rates are a sign of weak economies]
— Heather Long (@byHeatherLong) February 27, 2020

— The latest on the spread of the virus, via The Post's Adam Taylor:

Japanese Prime Minister Shinzo Abe asked schools to close through the spring break — which normally means early April — in a bid to contain the outbreak.
Iran said its death toll reached 26, with 245 confirmed cases. South Korea announced 505 new cases, bringing its tally to 1,766, including a U.S. soldier stationed in the country.
European stocks fell about 2.5 percent early Thursday before recovering some ground. U.S. stock futures pointed to a lower open on Wall Street.
In China, the government announced another consecutive fall in new cases, with 433 new confirmed infections and 29 new deaths. Most of the new cases and deaths were in Hubei province. A prominent Chinese health expert said Thursday he believed China could “basically control” the coronavirus by the end of April.

2020 WATCH

— Biden faces cash problems: “This is a make-or-break moment in a political career that began 48 years ago, and has taken him to the heights and back down again,” my colleagues Matt Viser and Cleve R. Wootson Jr. report from South Carolina about former vice president Joe Biden’s prospects.

But even a win in South Carolina won’t fix everything. “Biden has laid little groundwork in the next states, forced to spend almost all of his time in South Carolina this week as other candidates scatter to the next set of states. Strapped for cash, he is only now starting to buy advertising in some Super Tuesday states — and is spending a fraction of what his rivals are.”

Things have been tough during his third presidential campaign: “His fundraising has foundered, and he has often struggled during debates. He has faced an onslaught of criticism from President Trump, whose request that the Ukrainian president investigate Biden and his son Hunter led to Trump’s impeachment.
He’s also being greatly outspent: “Over the next week in Super Tuesday states, Bloomberg is spending $35 million, while businessman Tom Steyer is spending $5.9 million and Sanders is spending $3.6 million … Biden also has been outspent in South Carolina; his campaign and the super PAC supporting him have spent $1.1 million during the primary. It’s the lowest of anyone except Sanders — who is at $879,000 — and several candidates have more than doubled his spending.”

— Megadonor sounds alarm about Sanders: “Democratic megadonor Bernard Schwartz has started reaching out to party leaders, particularly House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, to encourage them to back a candidate for president in order to stop the surge of Sen. Bernie Sanders,” CNBC’s Brian Schwartz reports.

“Schwartz, the CEO of BLS Investments, told CNBC that in recent days he’s been trying to speak with Pelosi and Schumer about making a pick, in the hope that voters will follow their lead and end up denying Sanders the party’s presidential nomination.” The executive added that he has yet to hear back, but insisted that time is running out.

— Obama steps in … to get anti-Biden ad taken down: “Former president Barack Obama called on South Carolina television stations to stop running an ad from a super PAC supporting [Trump] that uses Obama’s words out of context in a misleading attack on [Biden],” my colleagues Michael Scherer and Anu Narayanswamy report.

“The Committee to Defend the President, a pro-Trump group, circulated an ad that falsely suggests that words Obama spoke in the narration of his own 1995 book were meant to describe Biden. The group, which placed a similar amount of anti-Biden advertising in Nevada earlier this month, reported to the Federal Election Commission on Tuesday spending more than $250,000 in South Carolina to oppose Biden.”

MONEY ON THE HILL

— Shelton gains a vote, but confirmation still not certain: Sen. Patrick J. Toomey (R-Pa.) said “he’ll support [Trump’s] nomination of Judy Shelton for the Federal Reserve Board,” Bloomberg’s Erik Wasson reports.

“Toomey’s backing is essential to Shelton’s prospects for clearing the Senate Banking Committee, but isn’t enough to assure her nomination gets sent to the floor for a vote.” Bloomberg reports that Sens. Richard C. Shelby (Ala.) and John N. Kennedy (La.) remain undecided — given the expected unanimous opposition from Democrats on the panel either of their votes could sink Shelton’s nomination.

Why Toomey had been on the fence: “[Toomey] had said during Shelton’s confirmation hearing that he was specifically concerned about her past comments indicating she supports the Federal Reserve devaluing the dollar in response to devaluations of other currencies. He said, in contrast, that an argument could be made for linking the dollar to a metric that includes precious metals.”
What changed: “Since the hearing, I have corresponded and spoken further with Dr. Judy Shelton about her views on monetary policy,” Toomey said in the statement. “She clarified to me that she will oppose using monetary policy for the purpose of devaluing the dollar. It would have been imprudent and contrary to statutory authorization for the Federal Reserve to go down this path. ”

— Warren pushes Fink on BlackRock’s climate pledge: “Sen. Elizabeth Warren wants Blackrock’s Larry Fink to put more strength behind his pledge to have the world’s largest money manager tackle climate change, and to detail how he expects to do it,” CNBC’s Lauren Hirsch reports.

“In a letter made public Wednesday, Warren (D-Mass.), asks Fink to support her Climate Risk Disclosure Act, which requires companies to reveal their climate-related risk. Warren is one of a number of advocates who believe creating clear, public measuring sticks is one of the only ways to hold companies accountable to their pledges of sustainability … Fink announced in January that BlackRock will exit investments with a high sustainability-related risk, such as coal.”

— Rubio seeks review of AT&T unit: "[Sen. Marco Rubio (R-Fla.)] asked the Trump administration to review the national security implications of AT&T’s Inc’s planned sale of its majority stake in Central European Media Group Enterprises (CME) to the Czech-owned conglomerate PPF Group,” Reuters's David Shepardson reports.

“Rubio … chairs the bipartisan and bicameral Congressional-Executive Commission on China, wrote that the Czech company has a record of acting as ‘China’s proxies inside the Czech Republic’ and added that PPF-owned telecommunications firms are working with Huawei Technologies Co [HWT. UL] to develop 5G networks.”

POCKET CHANGE

— BP continues to make climate-related moves: “BP is withdrawing from three trade groups over climate policies, a move that comes after the company vowed to reach net-zero carbon emissions by 2050,” my colleague Steven Mufson reports.

“The oil giant is pulling out of the American Fuel and Petrochemical Manufacturers, the Western Energy Alliance and the Western States Petroleum Association, the company said. But BP will remain in the American Petroleum Institute, which has lobbied for the rollback of a wide array of environmental regulations aimed at addressing climate change. API has worked with the Trump administration to eliminate mandatory limits on methane emissions from oil and gas operations, supported the construction of major new oil and gas pipelines, and pushed for the expansion oil and gas drilling on public lands and in federal waters.”

— SoftBank executive went to extremes to weaken internal rivals: “It was a career coup for Rajeev Misra. In 2017, the former banker, who had held a series of Wall Street jobs, was put in charge of one of the most formidable investing machines ever assembled. His rise to the top of SoftBank Group Corp.’s $100 billion Vision Fund isn’t a traditional tale of corporate ladder-climbing. He succeeded, in part, by striking at two of his main rivals inside SoftBank with a dark-arts campaign of personal sabotage,” the Wall Street Journal's Bradley Hope and Jenny Strasburg report.

“The tactics included planting negative news stories about them, concocting a shareholder campaign to pressure SoftBank to fire them and even attempting to lure one of them into a ‘honey trap’ of sexual blackmail, according to people familiar with the matter and documents reviewed by [the WSJ].”

— Wharton makes historic announcement: “The University of Pennsylvania’s Wharton School named Erika James of Emory University as its next dean, the first woman and African-American to head the prestigious business school in its 139-year history,” the WSJ's Patrick Thomas reports.

“James, who has led Emory’s Goizueta school since 2014, will take over the role July 1. She succeeds Geoffrey Garrett, who is leaving Wharton to become dean of the University of Southern California’s Marshall School of Business.”

CHART TOPPER

Putting the market's slide in context, via Compound Capital Advisors's Charlie Bilello:

S&P 500: -8.4% over the past week, largest correction since late 2018. $SPX pic.twitter.com/GFXISGAmdk
— Charlie Bilello (@charliebilello) February 26, 2020

DAYBOOK

Today:

Dell, Best Buy, Anheuser-Busch InBev, Keurig Dr Pepper, AMC Entertainment and Crocs are among the notable companies reporting their earnings

Friday:

THE FUNNIES

From The Post's Tom Toles:

BULL SESSION

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2020-02-27 12:31:31Z
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