Clearly, the China virus story is dominating headlines. We wrote about it last week, and given how rapidly the story is changing, we will hold back from writing anything on it this week. We mentioned some resources to track the virus in our Tuesday letter. I’d also recommend following this Twitter handle of health expert and writer, Helen Branswell.
As for our Exclusives this week, I write on the rise of Bernie Sanders in polls ahead of next week’s Iowa Caucuses. Dominique Dwor-Frecaut, former NY Fed and Bridgewater economist, gives her take on how upcoming changes in US consumer credit scoring could crack the US consumer. And credit strategist John Tierney looks at the T-Mobile/Sprint merger ahead of the looming decision on the anti-trust lawsuit.
Finally, US rates guru, George Goncalves wrote a piece on the Fed ahead of yesterday’s meeting. The scenarios he outlined still hold after the event, so it’s worth a read.
Could Bernie Sanders Upset Markets? (2 min read) The US presidential election season will start proper next Monday when the first nominating vote for the Democrat candidate will take place. While most polls and prediction markets are expecting Joe Biden to be the eventual candidate – a lot can happen especially in the early caucuses and primaries that could dislodge his leading position. Remember how in the 2008 primaries, Hilary Clinton was the favourite until Obama’s surprise win in Iowa vote.
The Cracks In US Households Finances (3 min read) US credit scoring is facing a revamp. Fair Isaac (FICO) recently announced changes to consumer credit scoring that will raise the credit core of highly-rated borrowers and lower that of lower-rated consumers. While lenders have a choice of ratings methodologies and could take time to adopt the new FICO scoring, Fed surveys show a gradual, but steady, tightening of consumer loans standards is already underway.
With household balance sheets starting to show signs of strain, this trend could have a negative and significant impact on consumption, the main, and already-slowing, engine of US growth.
(Dominique Dwor-Frecaut | 30h January, 2020)
Is US Anti-Trust Making A Comeback? (4 min read) Will the $26bn T-Mobile/Sprint deal actually happen? The decision will be made in the next few weeks. Back in August it looked like a sure thing. Now analysts give it a 50/50 chance of meeting anti-trust muster.
No one has a bigger stake in this flip of a coin than Softbank’s head, Masayoshi Son. He either walks away with a modest gain on his original $20bn investment in Sprint (S) in 2013 – or he faces losing it all plus somehow having to deal with a $39bn debt load if S ends up in bankruptcy.
It would be a painful hit but wouldn’t break Softbank. But coming on the heels of the WeWork disaster the reputational hit will more difficult to recover from.
Unfortunately, the American consumer is likely to end up on the losing end of a head-I-win tails-you-lose toss.
(John Tierney | 30th January, 2020)
FOMC Preview: Keeping A Wait And See Attitude Throughout Q1 (4 min read) As we head into the first FOMC meeting of 2020, and of the new decade, the Fed has a number of issues to deal with this year and thus everyone will be watching closely what they do. But now is not the time to make any major changes to policy. We expect the Fed wants this meeting to be a non-event and will reserve any new policy initiatives for later in the quarter.
(George Goncalves | 29th January, 2020)
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