Since the Shanghai composite moved massively lower at the end of the Chinese New Year holiday (it was playing catch up with the rest of the world, that) It’s only had three down days in the past month and is behaving as if nothing is happening – which is probably a testament to how much stimulus the government is undertaking, but doesn‘t pain an accurate picture of what is actually happening in the real economy. There was a BBC article earlier in the week that highlighted just how bad the situation is for millions of small businesses that only have enough cash flow to pay for one or two months expenses and we heard an interesting statistic in passing that Chinese auto sales are down more than 90% this month.

China’s debt pile is large, but it’s not totally disproportionate to the rest of the world and the government there is going to have to do more than just pump money into the system if it’s going to be able to support these businesses. It will be interesting to see if they are willing to force extraordinary practices upon banks and lenders in order for businesses not to go bust between now and getting this under control. Interesting because it might provide a benchmark for other central banks and governments to follow if they start to see similar issues.

The FT are talking about bond yields this morning – specifically about how much the risk premium has jumped on low grade corporate debt. They say that from Friday last week, to Tuesday this week the spread between US treasuries and corporate junk bonds has jumped more than half a percent. We’ve been going on for ages about how companies have been binging on debt as the market has been throwing cash at them, but that the moment that cash starts to come at more of a premium, they’ll either refrain from raising cash and potentially constrain their growth, or struggle to refinance at a price they can afford. The bond index has dropped below its 200 day moving average, which Jeffrey Gundlach (a pretty revered hedge fund owner) has called the canary in the coalmine – not ideal.

 In brighter news… Brexit! A research agency called Pantheon has released a note saying that they would expect a shallow recession if we ended up reverting to WTO rules to govern trade between us and the EU come January. This would happen if no deal was agreed and really comes as no surprise – though actually, the word ‘shallow’ in that phrase is pretty welcome. They see a 20% chance of this being the outcome.

Both sides are talking tough ahead of negotiations, with the latest coming from Ireland who say that a deal will be impossible if the UK doesn‘t honour its ‘border obligations’ – this is the UK having to make checks in the Irish sea for goods going from Britain to Northern Ireland in case those goods then travel into the Republic. Boris Johnson has said that checks shouldn‘t have to take place on goods moving within the UK.

In the US: Bob Iger has stepped down as CEO of Walt Disney. The news comes as a bit of a shock to most, as he’s been instrumental in the massive evolution of the company in the 15 years that he’s been in the top spot. Mr Iger is going to carry on as executive chairman for the next two years. The stock was down nearly 4% before the announcement with general market fears, but the futures market has it opening lower by about the same amount again off the back of this news. Disney’s theme parks business could be hammered by the Coronavirus, but it’s new Disney plus streaming service which goes live at the end of next month could get a huge boost in subscriptions if people are on lockdown. Not a bad natural hedge.

Listening to the New York Times’ daily podcast on the way in to work this morning; they were talking about Larry Fink’s annual letter that he writes to CEO’s of the largest companies in America. The letter, sent back in January, packs a punch because he’s in control of $7 trillion worth of investment funds and therefore has plenty of sway in the boardrooms of corporate America. This year the letter focused heavily on climate change and how businesses need to fundamentally re-think their approach to it and its possible impacts. The timing of this letter slotted in very conveniently ahead of a number of corporations announcing big strides in their sustainability policies (Amazon’s 50% reduction in carbon footprint by 2050, Delta airlines going Carbon neutral, Microsoft going carbon negative) The letter can be found here and it’s well worth a read.

Have a great day

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