WSJ What’s News: Bond Selloff Raises the Stakes for Earnings Season Release Date: January 13, 2025

In this episode of WSJ What’s News, hosted by Kate Bullivant, a range of pressing issues from catastrophic wildfires in Los Angeles to the global bond selloff and its impact on the stock market are discussed. Additionally, the episode delves into political developments surrounding key government nominations and the fragile state of the electric vehicle (EV) battery industry amid potential policy changes.

1. Catastrophic Wildfires in Los Angeles

Key Points:

• Persistent Santa Ana Winds: Los Angeles faces renewed threats from strong Santa Ana winds, exacerbating wildfire conditions.
• Firefighting Efforts: A brief period of calmer weather allowed firefighters to make progress, but conditions are rapidly worsening again.
• Death Toll and Severity: The death toll from recent fires has risen to 24, with California Governor Gavin Newsom predicting it could become the worst natural disaster in U.S. history.

Notable Quotes:

• Fire Chief Anthony Maroney [01:54]: “Los Angeles Elevated Critical Fire weather conditions will continue through Wednesday. Please rest assured that your county of Los Angeles Fire Department will be prepared. These winds, combined with low humidities and low fuel moistures, will keep the fire.”

• Kate Bullivant [02:17]: “The Palisades fire, which started a week ago, was just 13% contained as of early this morning, while the Eaton fire in Altadena and Pasadena is 27% contained.”

2. China's Growing Dependency on Exports

Key Points:

• Export Growth: Chinese exports surged by 5.9% to $3.6 trillion last year, now constituting a fifth of China's projected economic growth for the year.
• Domestic Challenges: The reliance on exports underscores China's difficulties in revitalizing domestic consumer spending.
• Trade Vulnerabilities: Increased dependence on exports makes China more susceptible to potential trade actions from the U.S., particularly under the Trump administration.

3. Global Bond Selloff and Market Implications

Key Points:

• Surging Government Bond Yields: Worldwide bond yields have risen sharply, leading to increased borrowing costs for governments and impacting global markets.
• Strong U.S. Economy: The bond selloff signals confidence in the U.S. economy's robust growth but also raises inflation fears.
• Global Impact: Rising U.S. rates influence global economies, making borrowing more expensive elsewhere, which can stifle economic activity.

Notable Quotes:

• Alex Frangos, Europe Finance Editor [03:49]:
  “It's basically a sign of the US Economy doing really well, growing much more strongly than people expected and therefore worries about inflation being more persistent and expectations that the Fed won't be able to cut rates as much as they wanted.”

• Kate Bullivant [04:35]: “What are the consequences of this for the stock market? Does this raise the stakes going into this earnings season?”

• Alex Frangos [04:41]:
  “Absolutely. So the stock market has had a little wobble the beginning of the year, partially because it's safer to be in bonds that are yielding 5% than in stocks that are already very overvalued.”

Implications for the Stock Market:

• Earnings Season Pressure: With high investor expectations for profit growth, companies must not only meet these targets but also provide optimistic future outlooks to maintain stock valuations.
• Potential Market Volatility: Failure to meet earnings expectations could lead to further instability in the already overvalued stock market.

4. Political Developments: CIA and Defense Secretary Nominations

Key Points:

• John Ratcliffe for CIA Head: Trump’s nominee is expected to advocate for intensified espionage operations against China, including targeting high-level officials and countering Beijing’s global influence.
• Pete Hegseth for Defense Secretary: Facing scrutiny over past sexual assault allegations and controversial statements regarding women in combat roles, Hegseth’s confirmation hinges on his Senate hearing performance.

Notable Quotes:

• Kate Bullivant [05:23]:
  “Donald Trump's pick to lead the CIA, John Ratcliffe is likely to push for more aggressive spying operations targeting Beijing if confirmed by the Senate this week.”

• Kate Bullivant [09:48]:
  “It's going to be very interesting to see what Republicans do here when they assume full control in Washington.”

5. The Fragile State of the EV Battery Industry Amid Policy Uncertainty

Key Points:

• Boom in EV Battery Plants: Significant investment has led to the emergence of EV battery factories across the southern and Midwestern United States, transforming towns like Elizabethtown, Kentucky.
• Dependency on Federal Subsidies: The growth of these plants is heavily reliant on Biden-era subsidies, with concerns looming over potential withdrawal of federal support under the Trump administration.
• Economic Impact on Local Communities: Towns experiencing EV battery plant booms are facing population growth, increased construction, and job creation, but the sustainability of these developments is uncertain.

Notable Quotes:

• Christopher Otz [07:42]:
  “Elizabethtown has been undergoing a boom in the last few years. Now it was growing already, but then in 2021 when Ford announced that it would build its largest electric vehicle battery manufacturing complex in nearby Glendale, that was the catalyst for just a huge boom in growth and construction.”

• Christopher Otz [09:16]:
  “These factories are coming to the south and the Midwest, primarily to Republican states such as Kentucky. And there's certainly the desire not to pull the rug out from under them, even though no Republicans voted for the Inflation Reduction Act.”

• Christopher Otz [12:14]:
  “Automakers are just not making money on EVs, and part of the equation is insourcing the battery making process and benefiting from the scale of selling many EVs and rationalizing the fixed costs associated with these huge investments.”

Potential Risks:

• Policy Reversal: If federal incentives such as the $7,500 tax credit for EV purchases are revoked, consumer demand for EVs may decline, adversely affecting the EV battery industry's growth prospects.
• Sustainability Concerns: Without continued financial support, many EV battery plants may face operational challenges, leading to potential job losses and economic downturns in dependent communities.

Conclusion

This episode of WSJ What’s News paints a comprehensive picture of the interconnectedness between economic policies, environmental challenges, and geopolitical tensions. From the immediate dangers of wildfires in Los Angeles to the broader implications of a global bond selloff, the discussions highlight critical factors that influence both local and international markets. Additionally, the episode underscores the precarious balance between government support and industry sustainability, particularly in the burgeoning EV battery sector, which stands at a crossroads amid shifting political landscapes.

For those not tuning into the podcast, this summary encapsulates the multifaceted issues impacting today's financial and political environments, offering insights into how these elements may shape future developments.