20 ★ Tuesday18 February 2020

“While it’s still early to call a recovery,

the leading indicators are starting to turn,

with strong growth in semiconductor

equipment billings and a sequential

improvement in [chip industry]

shipments,” HSBC told clients.

“Historically, the right time to buy slow

inventory turn distributors is once the

billings start to improve whilst inventory

levels are still at low levels.”

EngineerIMI etreated on a downgrader

to “underperform” from Credit Suisse.

Organic growth from IMI’s precision

tools business has been deteriorating and

margins have a history of surprising on

the downside, Credit Suisse said.

Laura Ashley ived on news that thed

retailer’s Malaysian owner has entered

talks with its key bank,Wells Fargo, for a

funding lifeline.MUI Asia, Laura Ashley’s

majority shareholder, said it was

“discussing arrangements” with Wells

Fargo and warnedit would “need to

consider all options” if new funding ouldc

not be secured.

Petra Diamonds ropped after thed

miner warned that the coronavirus would

“significantly reduce activity across the

pipeline”.

The diamond miner also cut revenue

guidance to reflect operational problems.

Bryce Elder

Meggitt, the aerospace engineer,

retreated on a downgrade to “neutral”

from Citigroup.

Supply chain pressures and the

grounding of Boeing’s 737 Max jet were

uncertainties that were not reflected in

Meggitt’s valuation, it said.

Bid talk may have boosted Meggitt in

the wake of a merger between sector

peersWoodward nda Hexcel nd aa

private equity buyout ofCobham, Citi

said.

But Meggitt is unlikely to be a target

for a peer as its wheels and brakes niche

is already an oligopoly between just four

companies, the broker said.

It also argued that private equity funds

tend to prefer businesses in a troubled

state — and that Meggitt was likely to be

too big a mouthful to swallow with a

market value of in excess of £5bn.

Jupiter Fund Management dgede

higher after revealing a £370m deal to

buy UK peerMerian Global Investors.

Segro, the warehouse owner, fell after

Deutsche Bank advised taking profit.

Deutsche was also cautious onImperial

Brands, the cigarette maker, which edged

lower.

Electrocomponents, the electronic

parts distributor, edged higher on the

back of an upgrade to “buy” from HSBC.

Dario Perkins

Markets Insight

Eurozone London

Bayer nda BASF ere under pressurew
after a Missouri district court awarded
$265m in damages and compensation to
a peach grower over claims that his crop
had been affected by a herbicide,
Dicamba, drifting in from soyabean and
cotton fields in nearby Arkansas.
Bayer and BASF, which along with US-
listedCorteva re the main Dicambaa
producers, said they were “surprised by
the jury’s decision” and plan to appeal.
Alstom ained after confirming it wasg
in talks to buyBombardier f Canada’so
train engineering division in a deal with
an estimated value of about $7bn
including debt.
Full-year results liftedFaurecia ithw
the French auto parts maker’s net cash
flow exceeding expectations and its 2020
targets left unchanged.
Interpump f Italy gained after resultso
last week from the maker of high-
pressure pumps led Kepler Cheuvreux to
add the stock to its “buy” list.
Management setting three-year targets
for the first time was a “sign of confidence
in the group’s ability to continue to create
value via M&A, which historically has
been a key driver”, said Kepler.
Kone f Finland slipped after droppingo
out of the bidding forThyssenkrupp’s
elevator unit.Bryce Elder

3 Chinese stocks climb after central
bank’s injection of liquidity
3 Rallying motor stocks help European
bourses edge higher
3 Japanese shares retreat as growth
data point to a possible recession

Global markets rose after Beijing
signalled that it was likely tointensify
stimulus measures as authoritiessought
to cushion the economicfallout from the
coronavirus outbreak.
The prospect of central bank support
has prompted investors to flood back into
equitieseven as China’s economy faces
significant disruption and the impact
spills into global supply chains.
European stocks climbed, with the pan-
regional Stoxx Europe 600benchmark up
0.3 per cent, taking its gains so far this
month to more than 5 per cent.
Automobiles and parts was among the
continent’s best-performing sectors,
climbing 1.3 per cent after strong results
from French car parts makerFaurecia.
New York marketswere closed for
Presidents’ Day.
Chinese stocks rose sharply, with the
CSI 300 of Shanghai- and Shenzhen-
listed shares gaining 2.3 per cent.
Yesterday’s move came after the
People’s Bank of China cut interest rates
by 10 basis points on Rmb200bn
($28.6bn) of loans offered via its medium-
term lending facility, a key rate for
interbank lending.

The market was largely trading on the

expectation of policy easing similar to

that delivered in 2015, said Larry Hu,

chief China economist at Macquarie,

wheninvestors worried back then that

the economy was heading for a hard

landing.

Beijing’s liquidity injection helped to lift

sentiment in Hong Kong where the

benchmark Hang Seng index gained 0.

per cent.

But Tokyo’sTopix stock index lost 0.

per cent after gross domestic product

datashowed Japan’s economy shrank at

an annualised rate of more than 6 per

cent in the fourth quarter.

The outlook for Japan is “grim”, said

Freya Beamish, chief Asia economist at

Pantheon Macroeconomics.

“[It] seems likely that GDP will fail to

recover in Q1 in the context of the shock

to exports from the virus and shutdowns

in China, alongside the damage to

tourism and confidence domestically.”

Brent crude prices remained steady

yesterday at $57.29 a barrel, while gold

slipped0.2 per cent to $1,580 an ounce.

Anna Gross

What you need to know

Japanese shares slide after country’s GDP misses forecasts

Indices rebased

Source: Bloomberg













Nov Feb

MSCI AC Asia ex Japan

Topix



 

The day in the markets

PG&E

Markets update

US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 3380.16(c) 1683.73 23523.24 7433.25 2983.62 115403.
% change on day - 0.31 -0.69 0.33 2.28 0.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 99.142 1.083 109.955 1.301 6.980 4.
% change on day 0.018 -0.184 0.178 -0.077 0.006 0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.587(c) -0.402 -0.043 0.663 2.895 6.
Basis point change on day - 0.000 -0.600 1.600 5.900 0.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 382.70 57.39 52.13 1581.40 17.71 2674.
% change on day 0.01 0.09 -0.06 0.40 0.37 -0.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

||||||| ||||||||| ||||

Dec 2020 Feb

3120

3200

3280

3360

3440

||||||||||||||||||||

Dec 2020 Feb

1600

1640

1680

1720

||||| ||||||||| ||||||

Dec 2020 Feb

7200

7360

7520

7680

Biggest movers
% US Eurozone UK

Ups

49.

NortonLifeLock 37.

L Brands 34.

Lennar 26.

MSCI 24.

Alstom 3.

Michelin 3.

Edf 2.

E.on 2.

Acs Const. 2.

Nmc Health 3.
Kingfisher 2.
Auto Trader 2.
Centrica 1.
Melrose Industries 1.
%

Downs

EQ T -51.

Goodyear Tire & Rubber -27.

Capri Holdings -24.

Cimarex Energy -24.

Noble Energy -22.

YTD change to last close

Kone -4.

Renault -4.

Thyssenkrupp -3.

Ses -2.

Stmicroelectronics -2.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Segro -3.

Smith (ds) -2.

Tui Ag -1.

Royal Bank Of Scotland -1.

Meggitt -1.

All data provided by Morningstar unless otherwise noted.

PG&E

T

he idea that central banks

can address any problem

that emerges in markets is

surely one of the most dan-

gerous in finance. In fact,

since the outbreak of the coronavirus in

China,itisreachingthepointofparody.

Withoutdoubt,theprospectofmone-

tarystimulushasbuoyedinvestorconfi-

dence over the past year, supporting a

powerful rally in equities and a big

easinginfinancialconditions.

But central bank officials are contrib-

uting to the fantasy that they can solve

other ills by continually talking about

risksoutsidetheirmandates.

We can all agree, for example, that cli-

matechangewillhaveseveremacroeco-

nomic consequences but it is less clear

how many trees policymakers can save

with an extra €30bn a month in bond

purchases or how to translate the Euro-

pean Central Bank’s inflation target into

degreescentigradeofglobalwarming.

Even aside from suchconcepts, while

central banks still holdsway over finan-

cial markets, their power to influence

the real economy has steadily dimin-

ished. Our analysis shows hat everyt

part of the transmission mechanism

from monetary stimulus to the real

economyhasfadedduringthe2000s.

Thatisnottosaymonetarytightening

would be ineffective. In a world of

record leverage and a decade-long

search for yield, there is no limit to the

chaoslargerateincreasesmightbring.

es, cutting interest rates can boostY

asset prices. But the assumption of cen-

tral bank support has become reflexive.

Investors appear to believe that big cen-

tral banks will respond to the economic

shock of the coronavirus with further

stimulus — which has helped to buoy

markets. But it is hard o see how inter-t

estratescanalleviateahealthcrisis.

More broadly, with a rising slice of

wealth now in the form of equities

ratherthanhousing,theimpactofmon-

etary stimulus on spending is weaker

than it has ever been. This is true for

both consumers, where equity holdings

are concentrated only among the

wealthiest,andforbusinesses.

Economists like to assume that lower

interest rates boost investment and

encourage people to bring forward their

spending plans. Yet empirical studies

have never really endorsed the link

between capital expenditure and the

costofborrowing.

Monetary stimulus may have played

this role in the past but it has dimin-

ished. Spending on consumer durables

such as cars, washing machines and

evenhousingwasalwaysthemostsensi-

tive part of the economy to monetary

policy,yetthesesectorshavedeclinedas

a share of overall gross domestic prod-

uctintheUSandacrosstherichworld.

It seems obvious, if stimulus works by

bringing forward spending, that a dec-

ade of low interest rates will eventually

lose potency.Maybewehavesimplyrun

out of “marginal” consumers who can

be encouraged to spend. That is the

impressionyougetfromglobalcarman-

ufacturers where demand has sagged as

customersstoppedborrowing.Consum-

ersonlyneedalimitednumberofcars.

Thelink between real interest rates

and personal saving has also broken

down. In some countries, it now even

operates inreverse. Research from Ger-

many’s central bank suggests consum-

ers in some euro-area countries will

curbtheirspendinginresponsetolower

interest rates as the losses they make on

their bank deposits outweigh any ten-

dencytoincreasespending.

This shift is most notable in Germany

where, contrary to theforeign financial

press narrative, opposition to ECB

policyisnotjustamatterofideology.

The other issue is that when another

economic shock strikes, entral banksc

will not be able to cut rates as much as

theyneededtointhepast.

Past recessions required at least 500

basispointsofratecuts,notthe0-175bp

available today. Sensibly, the US Federal

Reserve does not want to experiment

withnegativeinterestratesandeventhe

European central banks, which have hit

sub-zero deposit rates, are unlikely to

push these policies further. They realise

thecostswilloutweighthebenefits.

The official solution to this problem is

to react even more aggressively when

facing a particular risk. By using the

existing ammunition more forcefully,

central banks hope they can create

extraroomformanoeuvreonpolicy.

Two former Fed chairs, Ben Bernanke

andJanetYellen,recentlyexplainedthis

strategy indetail. The idea clearly reso-

nates withmonetary officials around

the world, given how quickly they

pivotedtowardseasingin2019.

Investors have welcomed thishyper-

sensitive risk-management approach

because they think it means they can

rely on monetary stimulus whenever

something goes wrong. They do not

seem to realise this was an admission of

weakness,notadisplayofstrength.

Dario Perkins is managing director for

global macro research at TS Lombard

Policymakers’ power

to protect against

shocks is waning

Cutting interest rates can

boost assets. But it is hard

to see how interest rates

can alleviate a health crisis

FEBRUARY 18 2020 Section:Markets Time: 2/202017/ - 18:51 User:stephen.smith Page Name:MARKETS2, Part,Page,Edition:EUR , 20, 1