| Thursday's Headlines 1. US markets rise after coronavirus is declared health emergency 2. Amazon shares spike on strong earnings report 3. US GDP growth comes in at 2.1% for Q4 2019 4. Brexit: What actually happens on February 1? Markets Closed
 photo: WHO.int
Markets Today Sometimes I am surprised at investors' reaction to major news events. Today was one of those days. Global markets were gripped by fear all day as more coronavirus cases were discovered around the world. The U.S. identified the first human-to-human transmission of the virus in the country, and China expanded its quarantine to other cities to contain the outbreak. This afternoon, the World Health Organization (WHO) declared the coronavirus a 'Global Health Emergency', and put measures in place for global health organizations to help triage and track the spread of the virus that has claimed 170 lives so far and sickened close to 8,000 people.
Just as that news broke, U.S. markets started climbing until they had erased their losses, eventually closing in positive territory. There is an adage in investing that says, "Buy the rumor, sell the news". Today, we saw the opposite of that. Investors sold stocks up until the WHO's declaration, and then started buying with a little over an hour to go in the session. They even bought airline and hotel stocks, which have been trampled all week on concerns that their businesses would be impacted by the global outbreak.
I have no reasonable explanation for this other than the fact that most intra-day trading is powered by software algorithms that can fire off hundreds of trades a minute and move markets instantly. Perhaps those algos deciphered that the WHO's declaration did not sound as alarming as it could have, and the buy signal was triggered. I really don't know.
There was a lot of other news breaking all day today, so let's get to it.
Headlines:
 Jack Taylor / Stringer
What Really Happens with Brexit Tomorrow? The U.K. officially leaves the European Union tomorrow night at 11PM GMT, which its citizens voted to do in June 2016. It's been a long and bumpy road to get here that has seen two prime ministers lose their jobs amid a broader fracturing of the British Parliament.
Tomorrow's 'exit' is mostly symbolic. The U.K. will no longer have representation in the European Parliament or a vote on the European Council, but will still be governed by EU laws until a transition period ends on Dec. 31, 2020. That's when the divorce will really be felt, although companies have been preparing for this day for three and a half years. A key challenge will be for Prime Minister Boris Johnson who will have to hammer out a trade deal with the EU before the end of 2020. He'll also need to figure out trade arrangements with the rest of the world.
If we learned anything in 2019, new trade agreements are never simple, and they can weigh on a country's growth for a long time. As this chart of the U.K.'s GDP shows, that growth is heading in the wrong direction.
chart courtesy TradingEconomics.com 
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(chart courtesy YCHARTS)  Electric car-maker Tesla rose today after it reported a strong adjusted-earnings beat. Other companies that rose after earnings beats are cloud computing firm ServiceNow and packaged food company Mondelez.  Software company Aspen Technology fell after disappointing earnings numbers, while chemical firm DuPont de Nemours fell despite matching earnings expectations due to disappointing guidance for this year. Word of the Day A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand, and still lower prices. Deflation occurs when general price levels decline, as opposed to inflation which is when general price levels rise. When deflation occurs, central banks and monetary authorities can enact expansionary monetary policies to spur demand and economic growth. If monetary policy efforts fail, however, due to greater-than-anticipated weakness in the economy or because target interest rates are already zero or close to zero, a deflationary spiral may occur even with an expansionary monetary policy in place. Such a spiral amounts to a vicious circle, where a chain of events reinforces an initial problem.  Today in History January 30, 1934 Today in 1934 the Gold Reserve Act was signed into law by President Franklin D. Roosevelt. The act restored stability to U.S. currency after his monetary programs of the previous year allowed the economy to reflate. The Gold Standard Act of 1900 established that dollars were convertible to gold at a rate of $20.76 an ounce. This peg restricted the money supply and meant that when the Great Depression hit, the economy was sent into a damaging deflationary spiral that the government had no policy tools to halt. In 1933 a series of executive orders and congressional resolutions removed the dollar's peg to gold, and raised the dollar price of gold, expanding the money supply and stopping deflation. The Gold Reserve Act tied the dollar back to gold at the higher price of $35 an ounce, and mandated that all gold held by private individuals and institutions be converted into dollars at that price. The law also established the "Exchange Stabilization Fund," that the Treasury could use to purchase securities, gold, and other assets to help regulate the money supply, much as the Federal Reserve does today.
Sources: https://www.federalreservehistory.org/essays/gold_reserve_act
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Thursday, January 30, 2020
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