Next stop: recession

MARKETS

• Markets: While U.S. traders bought cars and played FIFA Ultimate Team, investors around the world cheered China’s stimulus plans for its stalled economy.
• FYI: The figures above show year-to-date changes, since the U.S. markets were closed yesterday.

INTERNATIONAL

For Japan, Third Time's Not the Charm

After raising a controversial sales tax for the third time last October, Japan posted its second-worst quarter in a decade. GDP in Q4 2019 fell 6.3% on an annualized basis, driven by an 11.5% drop in consumer spending.

Those numbers were bad before the coronavirus hit. The outbreak, which has infected over 71,000 people, cost Japan critical tourism revenue from January's Lunar New Year holiday and threw supply chains for a loop.

If Japan’s GDP shrinks this quarter (as expected), the world's third-largest economy will be in a recession.

The tax

Japan introduced the consumption tax in 1989, then bumped it to 5% in 1997 and 8% in 2014.

Prime Minister Shinzo Abe was responsible for that last hike. Arriving in office (for the second time) in 2012, he's improved Japan's deflation, investment, and unemployment levels, but household consumption has remained frustratingly low, growing just 2.6% in real terms over the last 10 years.

But Japan's massive debt load (240% of GDP) and social programs won’t pay for themselves, so Abe bumped up the tax again to 10% and paired it with stimulus measures to offset potential negative impacts.

Critics of Abe have plenty of ammunition

Over the last 25 years, Japan's three worst quarters for household consumption coincided with consumption tax hikes, according to the WSJ.

And inflation dipped into the negatives in October, which suggests companies are being more cautious and cutting prices to keep demand up, according to the FT.

Big picture: While the Fed and European Central Bank launched stimulus measures last year, the Bank of Japan hung tight. But it's running out of options just as the coronavirus curveball leaves the country on the brink of another downturn.

TECH

Feeling the Heat, Bezos Launches Climate Fund

As Jeff Bezos showed us yesterday, when you post on the main feed in Insta, you better deliver. The Amazon CEO said he’s launching the Bezos Earth Fund⁣, a $10 billion initiative to fund efforts tackling climate change. It's the second largest charitable gift in recent history, per Recode.

• “We can save Earth. It’s going to take collective action from big companies, small companies, nation states, global organizations, and individuals,” Bezos wrote. ⁣⁣⁣

Bezos, the world's richest man, is launching the fund as he and Amazon are under more scrutiny than ever.

Exhibit A: tonight's PBS doc

Amazon Empire: The Rise And Reign Of Jeff Bezos, which airs at 9pm ET, does its best to condense an impossibly huge subject into a TV special. It digs into Bezos’s early career, Amazon’s “ruthless” reputation, and the company’s tense relationship with D.C.

Bottom line, from the show notes: “Jeff Bezos is not only one of the richest men in the world, he has built a business empire that is without precedent in the history of American capitalism.” The question the documentary asks is, are we okay with that?

MANUFACTURING

China Goes Back to Work...Slowly

Chinese factories are starting to creep back to life. Toyota is back in action as of yesterday, Airbus had a soft opening last week, and GM restarted some operations this weekend.

• But the damage is done. Yesterday, Apple said it doesn't expect to hit revenue guidance for the current quarter, citing iPhone manufacturing disruptions in China.

The backstory: Chinese factories had been shut down for weeks—first for the Lunar New Year holiday, then as tens of thousands were infected with the coronavirus. China accounts for around 25% of global manufacturing output and plays a role in a dizzying number of supply chains.

But while the world depends on the health of Chinese factories, those factories depend on the health of their workers. Authorities are requiring managers to supply employees with facemasks and check them for fevers. It's a delicate balancing act, and many plants remain understaffed.

Looking ahead...if you trust the financial markets, the economic disruption from the coronavirus will only be temporary. Chinese stocks recovered all of their post-Lunar New Year losses yesterday.

RETAIL

Pier Pressure

If you're looking to buy a home furnishings retailer, one went up for sale yesterday. Pier 1 Imports filed for Chapter 11 bankruptcy and said it's actively looking for potential acquirers.

With Pier 1, you'd get a 58-year-old company that…

• Secured $256 million in debtor-in-possession funding
• Is closing up to 450 stores
• Reported nine straight quarters of comparable sales declines

Drooling at the opportunity? Wait until we tell you about all of its competitors, from TJX's HomeGoods to Wayfair and Walmart.

Zoom out: Pier 1's story is a familiar one to retail experts. It was late to the e-commerce game, has a bloated real estate portfolio, and in 2019 hired a guy the WSJ calls a "retail bankruptcy veteran" as CEO.

• Interesting fact: Retailers often wait until after the busy holiday season to file for bankruptcy, making January and February popular months for Chapter 11s.

Looking ahead...start preparing your offer now. Qualified bids for Pier 1 will be due around March 23.

ENERGY

UAE Goes Nuclear

Nuclear power is getting its first Arab expansion team. Yesterday, United Arab Emirates regulators handed the Barakah nuclear reactor its operating license, anointing it the first nuclear power plant in the Arab world.

It's an exclusive club. Only 30 countries currently generate nuclear power, and no new country has joined the club since China in 1990.

• Building a nuclear power plant isn't that simple. Barakah went over budget, faced years of delays, and required a 14,000-page application.
• Total financing for the project—a joint venture with Korea Electric Power Corp—came to $24.4 billion.

Zoom out: The UAE isn't facing an energy crunch. In fact, it's the No. 3 producer in OPEC, a tight-knit group of oil exporters. But like its neighbor Saudi Arabia, it's trying to diversify its economy away from oil production and invest in renewables.

Looking ahead...the project calls for four reactors in total by 2023. The goal is for these nuclear plants to generate 25% of the UAE's energy requirements.

WHAT ELSE IS BREWING

• Mark Zuckerberg met with the EU's competition boss in Brussels. The European Commission is set to release AI regulations tomorrow.
• GM is pulling out of Australia, New Zealand, and Thailand and retiring its Holden brand.
• The Dairy Farmers of America agreed to buy a "substantial" part of milk producer Dean Foods for $425 million.
• SpaceX launched another batch of 60 Starlink satellites yesterday, however its rocket booster didn't make a successful landing.

WORLD LEADERS

Are you smarter than a presidential candidate? When asked by Telemundo to name the president of Mexico, Dem candidates Sen. Amy Klobuchar and Tom Steyer both said they forgot/didn’t know. Only Mayor Pete got it right.

Do you know the name of the president of Mexico? And while we’re at it, see if you can name the leaders of these countries as well:

1. The U.K.
2. China
3. India
4. France
5. Turkey

WORLD LEADERS ANSWER

1. U.K. Prime Minister Boris Johnson
2. Chinese President Xi Jinping
3. Indian Prime Minister Narendra Modi
4. French President Emmanuel Macron
5. Turkish President Recep Tayyip Erdoğan