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Apple’s Early Warning
Apple became the first major U.S. company to say it won’t meet its revenue projections due to the coronavirus outbreak. The virus has limited iPhone production for world-wide sales and curtailed demand for its products in China. Apple’s announcement is the most prominent example yet of the broad ripple effects of the coronavirus on global business and markets as the outbreak continues to spread, hitting smartphone sales and commodity prices and delaying production across industries. The difficulties are extending into supply chains around the world as assembly lines from Asia to Europe depend upon parts moving swiftly from China into their plants, Tripp Mickle reports.
[wsj-responsive-sandbox id = "0" ]WHAT TO WATCH TODAY
The New York Fed’s Empire State Survey for February is expected to tick down to 4.5 from 4.8 a month earlier. (8:30 a.m. ET)
The National Association of Home Builders housing market index for February is expected to hold steady at 75. (10 a.m. ET)
Minneapolis Fed President Neel Kashkari speaks at a Minnesota Indian Affairs Council meeting in Saint Paul at 2 p.m. ET.
Japan’s trade balance for January and machine orders for December are out at 6:50 p.m. ET.
TOP STORIES
The Chain
Following a dismal final quarter of 2019, Japan’s economy is facing the risk of a recession because the coronavirus outbreak is hurting tourism and production. The world’s third-largest economy contracted at an annualized rate of 6.3% in the October-December quarter, pulled down by a sharp drop in private consumption after the national sales tax rose to 10% on Oct. 1 from 8%. Some economists say Japan could fall into a technical recession—two straight quarters of contraction. The contraction in the October-December quarter was the first in more than a year and the biggest since the April-June quarter in 2014, the last time the sales tax was raised, Megumi Fujikawa reports.
Germany’s central bank warned that it sees no sign of improvement in the growth outlook in the first quarter of 2020. Germany’s economy, Europe’s largest, has stagnated for almost two years as international trade tensions weighed on its large manufacturing sector. The coronavirus outbreak in China is an additional threat. The Bundesbank said a temporary decline in China’s economy is likely to damp German exports. The Bundesbank called on the government to spend its large surplus to provide a boost.
Global trade was on track to weaken in the opening months of 2020 even before the coronavirus outbreak. The World Trade Organization’s goods trade barometer for December suggests year-on-year trade growth may fall again in the first quarter, weighed down by softening demand for air freight, electronics and raw materials. “It does not account for recent developments such as the outbreak of COVID-19, the new coronavirus disease, which may dampen trade prospects further,” the WTO said.
Open and Closed
China’s State Council on Tuesday released a list of U.S. products that could be temporarily exempted from punitive tariffs imposed during the trade fight with the U.S. The move comes after Beijing halved tariffs earlier this month on $75 billion of U.S. imports, part of the country’s efforts to implement the limited trade deal signed with Washington in January. The latest list of U.S. products includes nearly 700 items, ranging from beef, pork, soybeans, crude oil and medical equipment that are needed to contain the spread of coronavirus in China, Grace Zhu reports.
The Trump administration is weighing new trade restrictions on China that would limit the use of American chip-making equipment, as it seeks to cut off Chinese access to key semiconductor technology, according to people familiar with the plan. The Commerce Department is drafting changes to the so-called foreign direct product rule, which restricts foreign companies’ use of U.S. technology for military or national-security products. The changes could allow the agency to require chip factories world-wide to get licenses if they intend to use American equipment to produce chips for Huawei, Asa Fitch and Bob Davis report.
Can I Kick It? Yes You Can.
Vehicles are getting more expensive and Americans are struggling to afford them. Dealerships now make more money arranging financing than selling vehicles. If a car loan goes bad, it typically isn’t the dealership on the hook—it is the borrower or lender. One side-effect: Some dealerships are telling buyers to stop making payments on their old car. In a practice known as “kicking the trade,” dealerships typically get a lender to approve a loan for the buyer’s new vehicle. Next, the buyer generally goes home with two vehicles and two loans. It is only then the buyer asks the original lender to repossess the original car, AnnaMaria Andriotis and Ben Eisen report.
Long Walk, Short Pier
Pier 1 Imports, the funky furniture retailer that started out selling bean bag chairs and love beads and later grew into a home-furnishings giant, filed for bankruptcy Monday, a victim of changing consumer tastes and an unforgiving retail environment. Pier 1 said it intends to use the bankruptcy process to complete closure of some 450 stores, Aisha Al-Muslim reports.
It’s been a rough stretch for retail workers. The sector has shed more than a quarter-million jobs since the start of 2017 and bankruptcy-related cuts spiked last year.
Where do retail workers go when they lose a job? Perhaps as a testament to the constant churn of the U.S. labor market, about one-third of separated retail workers who find another job end up right back in the same sector, according to Census Bureau data. Roughly another quarter slide into similarly low-wage, service sector work. Relatively few land in transportation and warehousing, a sector that’s often considered a beneficiary of the consumer shift to shopping online from shopping at the mall.
WHAT ELSE WE’RE READING
President Trump’s tariffs hit global supply chains and hurt U.S. exporters. “Firms that eventually faced tariff increases on their imports accounted for 84% of all exports and they represent 65% of manufacturing employment. For all affected firms, the implied cost is $900 per worker in new duties. To estimate the effect on U.S. export growth, we construct product-level measures of import tariff exposure of U.S. exports from the underlying firm micro data. More exposed products experienced 2 percentage point lower growth relative to products with no exposure. The decline in exports is equivalent to an ad valorem tariff on U.S. exports of almost 2% for the typical product and almost 4% for products with higher than average exposure,” Federal Reserve economists Kyle Handley, Fariha Kamal and Ryan Monarch write in a discussion paper.
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