Double yikes. Arrest this beast! Please!
On a business trip meeting with many firms with huge exposure to China. Concern in their community definitely growing but still a bit clueless about the seriousness of the growing crisis. I give them about two weeks before full blown panic sets in.
Our analysis of the impact of the Coronavirus is a work in progress and nobody knows the endgame. It is still the early days of the epidemic, and its dynamics will take time to understand. The scale of the impact will depend on how contagious and lethal it reveals itself. That is the second derivative of the infection rate – the rate of change of the rate of change.
There is a supply shock to global manufacturing as many factories in the world’s supply chain will be shuttered for longer, which shifts the global supply curve left, increasing-price and production pressures. Ergo component shortages, higher prices, and lower production.
The 2 percent decline in the U.S. stock market and collapse in bond yields are signaling a potential global aggregate demand shock that offsets inflationary pressures of the supply shock.
As of Friday, 10,000 cases have been confirmed by China, surpassing the total from the 2002-2003 SARS epidemic. The new virus has killed 171 people in China.
The epicenter of the outbreak is Wuhan, one of China’s largest manufacturing centers. Foxconn and Pegatron have operations there, as do memory manufacturers such as XMC (non flash) and Yangtze Memory Technologies Co. (non-volatile memory).
Auto producers, such as General Motors, Honda, Volkswagen, BMW and Daimler also populate the region.
The electronics industry is poised for a cascading disruption that could change industry growth forecasts for the year. Bill McLean, president of semiconductor research firm IC Insights, said the virus has exacerbated the economic unease that has stalled semiconductor capital investment.
“Brexit, trade issues and now the coronavirus are causing global uncertainty,” he said at a Boston-based forum. “Uncertainty causes [businesses and consumers] to freeze.” Worldwide, semiconductor capital spending is forecast to decrease by roughly 6 percent this year, from $103.5 billion in 2019 to roughly $97.6 billion.
Zhang Ming, an economist at government-backed think-tank the Chinese Academy of Social Sciences, warned that the virus could push China’s economic growth below 5 per cent a year in the first quarter, reported the Financial Times. Economic consensus currently puts China’s GDP growth at 5.7 percent. That average has steadily declined since 2018, according to McLean. — EE Times
More than 300 of the Global Top 500 companies have a presence in Wuhan, including Microsoft and Siemens. Wuhan is located in the Hubei Province.
Wuhan has 10 car factories, including those Honda, Renault, PSA and General Motors. The car industry represents around 20 percent of the city’s economy and employs 200,000 people directly and more than a million indirectly.
Most factories lose about two weeks of production in total during the Lunar Holiday but more production will be lost as the holiday has been extended.
Here is a look at the main manufacturing regions in China.
China Manufacturing Distribution Breakdown
Electronic Industry: Mainly in Guangdong (33%), the rest in Yangtze River delta, Sichuan, Shaanxi Provinces.
Textile Industry: Mainly in Zhejiang (18%) and Jiangsu (20%), the rest in Fujian, Guangdong, Shandong Provinces.
Leather & Feather: South-East Coastal areas, Hebei, Henan, Chongqing and Ningxia provinces.
Metal Product: Zhejiang, Guangdong, Jiangsu, Shandong, Hebei, Henan provinces.
Glass: More in Hebei, Jiangsu, some in Shandong and Guangdong provinces.
Ceramics: Jingdezhen in Jiangxi provinces
Furniture: Mainly in Guangdong and Hebei province, the rest in Jiangsu, Zhejiang, Shanghai, Chengdu and Beijing.
Construction: More in Shandong province, the rest in Hubei, Henan, Guangdong, Jiangsu, Beijing, Zhejiang.
Household Appliance: Guangdong, Zhejiang, Shandong provinces.
Artware & Stationary & Sporting: Zhejiang, Fujian, Guangdong, Hubei
Papermaking & Printing: Guangdong, Zhejiang, Jiangsu, Shandong, Fujian
Machinery Manufacturing: Dongbei Area, Hunan and Hubei provinces.
Petrochemical Industry: Shandong (32%), Liaoning (21%), Guangdong (15%)
Pharmaceutical Industry: Tianjin city, Xian city in Shanxi province
Food & Beverage: Liaoning, Shandong, Jiangsu, Guangdong, Fujian, Hebei, Henan, Hunan, Hubei, Inner Mongolia
Transportation Equipment:
Source: Berkeley Sourcing Group
Source: CNN
See here for a good primer on the term Kafkaesque.
“So disorienting and illogical”
Screening for guns but no screen if you’re packing at the state Capitol. WTF?
That’s less than a chip shot away from the logic of the three monkeys now taking place in the Nation’s Capitol.
https://twitter.com/Joe_Gerth/status/1223278777045856257?s=20
Tesla is gapping up 12% after hours after releasing earnings.
We know several shorts who have been destroyed over the past six months. The stock is up 270 percent from its June lows. Rather stunning.
This comes after the company reported positive net income in the Q3 earnings report.
Still, auto revenues grew by just 1 percent in 2019, but up 18 percent sequentially in Q4.
GAAP net income was down 25 percent on the year and 27 percent sequentially.
Vehicle deliveries climbed to over 100k for the time.
We are watching closely how these high fliers, including Apple, behave over the next few weeks.
The price action in Tesla, among others, is more of a macro thingy than micro, in our opinion. Very Bubblicious. We never learn.
Apple’s stock has been on a tear ever since the company’s quarterly year-on-year iPhone revenue growth went negative. Of course, the market had anticipated it and sold-off prior to the hard data coming out. As the following chart illustrates, Apple’s stock rose 88.9 percent as the iPhone revenues simultaneously experienced four quarters of y/y negative growth in its 2019 fiscal year.
Show most any stock jockey/algo the following chart and we bet they will deny it.
The iPhone still makes up over 60 percent of the company revenues. Wearables are on a tear, up 37 percent with services still showing strength, up 16.92 percent year-on-year.
As much as Wall Street wants to disbelieve, Apple is still a hardware company, deriving over 85 percent of its revenues from products that you can drop on your feet.
Interestingly, revenue growth was strongest in the region perceived to be the weakest economically.
Now that the company has reestablished revenue growth the question is: Is it priced?
Watch yesterday’s low $304.88.
P.S.. Since Tim Cook stopped reporting the data summary table and breaking out unit sales of its hardware, it’s much more difficult to analyze the numbers. It looks like it worked for him given the stock’s performance over the past year.
“No warning on earth can save people determined to grow suddenly rich.” – Lord Overstone
Coronavirus scare starting to hit big manufacturing cities and is definitely going to have a much bigger effect on the global economy. Shantou is one of China’s “Santa’s Workshop” with a huge toy manufacturing base in the Guangdong province.
Guangdong is the most populous province of China and the 15th-largest by area. Its economy is larger than that of any other province in the nation and the 6th largest sub-national economy in the world with a GDP size of 1.47 trillion US dollars (9.73 trillion Chinese yuan) in 2018. — Wikipedia
China is the world’s largest toy manufacturer, producing around 70 percent of the world’s supply. Most of China’s exported toys are produced by OEMs who manufacture for foreign brands. China has numerous toy industry clusters along its affluent east coast. Guangdong province alone produces over half of the world’s toys, with the cities of Dongguan, Foshan, Shantou, and Shenzhen leading the way.
Watch Hasbro and Mattel stock on Monday morning open.
The following is a good primer on the manufacturing clusters in the Guandong province, which includes Shantou.
The section on Shantou starts at about 7:40 minutes in.
Global Macro Monitor 