Strong dollar, cheap oil—the twin shocks that could roil markets well beyond coronavirus

February 14, 2020, 10:01 AM UTC

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Happy Valentine’s Day, everyone. San Valentino, the Italian patron saint for whom this day is named, hailed from just up the road here, in the Umbrian town of Terni. No doubt he too would have been enamored with these markets.

Markets update

Risk-off is, well, off the cards today. The Asian markets have rebounded from early losses. In fact, as I type, the Hong Kong and Shanghai markets are up. Europe is flat, but the U.S. futures are in the green.

Yesterday, the global equities markets took a hit from coronavirus data that was both surprising and confusing. That triggered a testy White House response about the lack of data transparency coming out of China, a familiar complaint. Today, the numbers aren’t quite so bad; they’re not all that uplifting either. China reported a total of 4,823 new cases overnight, pushing the global tally to above 64,000, and the death toll to 1,380.

Let’s step back and look at the bigger picture, as we do each Friday.

By the numbers

We don’t have a chart today, but we do have the big figures that have moved markets this week, and the ones that will likely play a big role in the weeks ahead. Here we go.

3. As in three cents. A whole three U.S. cents. Yes, we’re starting with the dollar. Coronavirus is the most disruptive shock of 2020 so far. Dollar strength is a close second. And of course they’re interlinked. As we discussed earlier, a strong dollar makes exports more expensive, and messes with the competitiveness of American companies abroad. A number of multinationals have already been warning of exchange-rate effects on earnings calls. Get used to that. The dollar is up against most major currencies this year. As of this morning, it’s gained 3 cents to $1.084-to-the-euro since the coronavirus crisis hit in mid-January. That’s a big jump in FX circles, and it’s likely to eat into the bottom lines of most multinationals.

365,000. As in barrels of crude. On Thursday, the International Energy Agency delivered a new 2020 forecast for oil. They predict coronavirus will decimate demand, and so they’re cutting their outlook 30%, by 365,000 barrels per day. The price of benchmark Brent crude has rebounded in recent days, but it’s still down about 18% for the year. While some of us will celebrate cheaper prices at the pump, this forecast is the result of a giant demand shock, and clearly represents a sign of weakness in the global economy. As a Rystad Energy oil analyst says, this is the worst hit to oil since 2008. We all remember what happened that year.

576.69 or 288.03. Take your pick. The first number represents how many points we are from Dow 30,000; the other is what’s separating us from Nasdaq 10,000. Both the Dow Jones Industrial Average and Nasdaq are up in the past week. Bull Sheet readers will recall I’ve asked for your bets on when we’ll hit the big Three-Oh. (You can still hit me up; message me!) So far, I’ve had a number of bullish Dow 30K predictions, that, in hindsight, look really sensible. I should create a tie-breaker question: which index will hit its milestone first: the Nasdaq or the Dow?


Have a nice weekend. We’ll see you next week!… Programming note: There won’t be a newsletter on Monday (Feb. 17) as the U.S. markets are closed for the President’s Day holiday.

Bernhard Warner

Correction: The International Energy Agency has cut its 2020 oil forecast by 365,000 barrels per day. A previous version of Bull Sheet incorrectly stated the forecast was cut to 365,000 barrels per day.

Today's reads

U-turn. Tesla CEO Elon Musk was definitive during the company's January 30 earnings call. Despite its current heat of expansion, "it doesn't make sense to raise money because we expect to generate cash despite this growth level," he said. But now comes news that Tesla will sell another $2 billion in stock, Erik Sherman reports in Fortune. Musk himself plans to buy up to $10 million in shares in the offering. While some analysts pined for more consistency in the company’s messaging, investors were unfazed, bidding the shares up 5% on Thursday to $804.

London calling. Bankers and fund managers are buying top-end London homes at a rate unseen since 2013 as concerns about the city’s post-Brexit future recede, Bloomberg reports. Financiers accounted for around 35% of the homes bought for more than 2 million pounds ($2.6 million) in the U.K. capital’s toniest neighborhoods last year, according to broker Knight Frank. Across London’s priciest neighborhoods, such as Mayfair and Chelsea, home sales increased by 34% in the last three months of the year.

Inflation disconnect. Inflation remains at historical lows, currently running only slightly above the Federal Reserve's target 2% level. But a Fortune analysis of inflation data and price changes in critical areas vital to consumers suggests that, for many, rising prices in a variety of categories are making everything from rent to college and healthcare seem out of reach. These are the reasons for that disconnect. 

Market candy

Happy birthday. On this day in 2005, the story goes, the Internet domain name was registered. Valentine’s Day was a good day to launch YouTube because founders Chad Hurley, Steve Chen and Jawed Karim, who met while working at PayPal, initially conceived it as a dating website for single people to upload videos introducing themselves. Some 20 months later, Google snapped up the video-sharing bazaar for $1.65 billion. Some thought it had over-paid, but time has proved them wrong.  Needham analyst Laura Martin said a few months ago that YouTube would be worth $300 billion as a stand-alone company. The company says it now has more than 2 billion users—or almost one in three internet users (including my kids, who prefer it to TV).

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