Morning briefing: Five things you need to know to start your day

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Published: January 14, 2019 7:42:10 AM

Many financial markets are already signaling that the U.S. is more likely than not hurtling toward recession. The question is whether they will prove prescient or overly fretful. But there are other causes for concern.

China’s largest technology company, Huawei Technologies Co., has fired a sales director arrested in Poland on suspicion of espionage.

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Recession indicators are showing increasing signs of concern, the Huawei crisis is deepening and investors are awaiting a raft of big U.S. bank earnings. Here are some of the things people in markets are talking about.

U.S. Recession Risk
Many financial markets are already signaling that the U.S. is more likely than not hurtling toward recession. The question is whether they will prove prescient or overly fretful. The prospect of a widespread yield inversion in the Treasury market has generated the most alarm: it’s a signal that has preceded U.S. downturns for more than half a century, and is now edging even closer to fruition. But there are other causes for concern. Riskier assets from stocks to credit took a hit in late 2018, while Bank of America’s recession indicators have jumped in recent weeks and Goldman Sachs’ market-based model puts recession odds at 50 percent. Meanwhile, Jeffrey Gundlach has said yet again that the U.S. economy is gorging on debt. The investment manager countered President Donald Trump’s claim that he’s presiding over the strongest economy ever, arguing that the growth is debt-based.

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China and the Hunt for Jho Low
Malaysian police said they’ve met with Chinese authorities to boost efforts in the hunt for fugitive financier Low Taek Jho, according to Bernama news agency. Low, better known as Jho Low, has been painted by U.S. prosecutors as a central figure in Malaysia’s 1MDB scandal, where billions of dollars were allegedly embezzled from the state investment company. He has repeatedly maintained his innocence and faces charges including money laundering in Malaysia. He had been charged in absentia as his whereabouts are not known. Earlier this month, Malaysia said it was looking into allegations that China offered to help deter probes into 1MDB in exchange for infrastructure projects, after the Wall Street Journal reported that senior Chinese leaders offered to help bail out the troubled state fund in 2016.

Huawei Crisis
China’s largest technology company, Huawei Technologies Co., has fired a sales director arrested in Poland on suspicion of espionage. The telecoms giant moved swiftly to distance itself from a case that may crystallize fears the company helps Beijing spy on Western governments, saying the incident has brought Huawei “into disrepute,” without elaborating. The arrest comes as Huawei becomes a lightning rod for America’s fears about China’s economic and technological ascendancy. Europe is a key revenue contributor for Huawei, said Brock Silvers, managing director of Kaiyuan Capital, which holds no investment in Huawei. “Regardless of how the allegations against Wang are ultimately resolved, it seems likely that Huawei’s important European business will suffer in 2019.”

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Coming Up…
Asian stocks were poised for a mixed start on Monday, following the best week for regional stocks since the start of November, as investors awaited a raft of earnings and trade data from China. The yuan held recent gains and oil remained above $51 a barrel. Japan is closed for a holiday, so Treasuries won’t trade until the London open. Events to look out for this week include earnings from some of the world’s biggest banks, such as Citigroup, JPMorgan and Goldman Sachs, and the U.K. Parliament’s Tuesday vote on Prime Minister Theresa May’s Brexit deal.

Tough times for Europe
Fractures in European politics are deepening. In the euro area’s latest sign of political instability, Greece’s Prime Minister Alexis Tsipras will call a confidence vote after a key coalition partner withdrew its support over a naming dispute with Macedonia. The vote could trigger an early election and end the leftist leader’s four years in power. In France, anti-immigrant leader Marine Le Pen started her party’s campaign for EU Parliament balloting in May, which may be viewed as a referendum on President Macron. And in the U.K., Prime Minister Theresa May faces defeat in Tuesday’s Brexit vote. On Monday she will make an 11th-hour appeal, warning that Parliament risks blocking Brexit and undermining democracy, rather than causing Britain to leave the EU without a deal. Opposition leader Jeremy Corbyn has indicated that his party is ready to call a no-confidence ballot, which could lead to a general election.

What we’ve been reading
This is what caught our eye over the last 24 hours.

China’s big banks throw a $22 billion test at the hybrids market. Trump won’t even give Fox News a straight answer about Russia. Cathay accidentally offers first-class seats at economy prices. Again. Investors keep pulling money from Bill Gross’s bond fund. Thais are protesting over the risk of an election delay. Samsung launches new smartphones to win back Indian consumers. Wimbledon plans to honor Andy Murray with a statue.

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