The Market Today
Consumer Inflation Firms; N.H.C. Changes nCoV Tabulation Method Again
by Craig Dismuke, Dudley Carter
Coronavirus Update: The number of confirmed cases, according to the previous definition of “confirmed cases” increased to 46,472 in China overnight, up 1,819 from yesterday’s tally. However, the total number of confirmed cases reported by N.H.C. actually rose 15,151 to 59,804. This figure now includes 13,332 cases which have been clinically diagnosed but which have not had yet a nucleic acid test. Prior to today, those clinically-diagnosed cases were not included in the “confirmed cases” tabulation. This is the second time the N.H.C. has changed the reporting method. According to guidance from the N.H.C. dated February 6, China began classifying coronavirus results into four categories: “suspected cases,” “clinically-diagnosed cases,” “positive tests,” and “confirmed cases.” Only patients who tested positive for the virus AND who exhibited symptoms were included in the count of “confirmed cases” after this guidance. If someone tested positive but showed no symptoms, they would classified in the “positive tests” category. The number of deaths has now risen to 1,370. To see our updated Coronavirus Chartbooks, please click here.
Firm Consumer Price Inflation in January: January’s CPI inflation report showed broadly firmer consumer inflation pressure. Headline CPI rose 0.15% MoM bringing the YoY rate up from 2.3% to 2.5%. This monthly gain was softened by a 0.7% MoM decline in energy prices which more than offset the stronger 0.2% gain in food prices. After rising to $63.27 per barrel in early January, crude oil prices fell 18.5% to close January at $51.56 per barrel. Core prices, however, rose 0.24% MoM keeping the YoY rate at 2.3%. It was expected to fall to 2.2%. The big components of core inflation were mixed. Auto prices pulled back again as used car prices fell another 1.2% MoM. Medical care prices were a bit softer than the recent growth rate, rising 0.2% versus the 12-month trend rate of 0.4%. The YoY rate of medical care inflation remained at 4.5%, one of the highest rates of growth of the cycle. But the ever-important housing category was quite strong. Housing inflation rose 0.3% MoM which included a 0.34% MoM gain in owners’ equivalent rent, the firmest monthly growth rate in at least the last two years. Apparel prices rose 0.7% MoM, recreation prices gained 0.3%, education/communication prices increased 0.3%, and other goods/services prices rose 0.6%. All of these smaller categories reflected firmer price pressure than their trend rates. The majority of inflation pressure continues to come from the services sector with core services CPI now up 3.1% YoY, reflecting growing employee wages. In contrast, core goods inflation fell to -0.3% YoY.
Initial and Continuing Jobless Claims Remain Strong: Initial jobless claims for the week ending February 8 remained very low, increasing 2k to 205k. After jumped in last week’s report, the number of continuing claims pulled back into less-concerning territory. The number of people continuing to apply for unemployment benefits (excluding first-time claims) dropped from 1.759 million to 1.698 million.
Senate Hearings for Two Fed Nominees: The Senate will hold confirmation hearings for two nominees to the vacant Fed Board seats. The two nominees are Dr. Judy Shelton, ironically an advocate for returning to the gold standard, and Dr. Christopher Waller, the director of research at the St. Louis Fed Bank.
Stocks Reset Record Books…Again: Global markets have told a consistent story in recent days: the coronavirus could be contained sooner than expected, and the economic fallout will be large enough to entice global policymakers to ease, but not severe enough to derail the global expansion. Global markets perked up again Wednesday as the most recent statistics showed the number of new virus cases in China continued to slow. The S&P 500 gained 0.7% Wednesday, trailing larger gains for the Dow and Nasdaq, and has set a new all-time high each day this week. The index’s gain was driven by strength in 10 of 11 sectors with energy closing ahead of all other sectors. Crude prices gained more than 3% with U.S. WTI posting its best day since early December.
Oil and Yields Rose Too, but Less Convincingly: Even with Wednesday’s gain, however, U.S. WTI remains down 12% since news of the coronavirus first broke, reflecting a lingering uncertainty about the economic outlook. Treasury yields have also risen this week but, like oil prices, continue to be held back by uncertainty. The 2-year yield rose 2.0 bps to 1.44% on Wednesday while the 10-year yield added 3.3 bps to 1.6%. However, both remain well below levels prior to the virus outbreak; the 2-year yield is down more than 11 bps since January 17 and the 10-year yield has declined more than 18 bps. Fed funds futures have moved higher in yield as well as market pressures have eased, but are still fully priced for at least one rate cut this year.
Virus Cases Spike as China Allows Clinical Diagnosis: Markets’ unwavering optimism wobbled overnight after a shocking spike in the number of new confirmed cases and deaths tied to China’s coronavirus. China announced Thursday that it would now consider patients who are clinically diagnosed by a doctor as infected with the virus to be a confirmed case. Prior to the change, only those who were associated with a positive lab test were added to the confirmed case count. Total confirmed cases increased by more than 15,000 on Thursday, more than 13,000 of which were clinically diagnosed and a result of the change in methodology. The large jump adds to speculation that the steady, linear growth in cases before the change partly reflected capacity constraints for lab testing.
Markets Shaken by Spike in Cases: Chinese stocks declined 0.6% to lead moderate declines in Asia and Europe’s Stoxx 600 had dropped 0.7%. U.S. futures were down by similar amounts just after 7 a.m. CT, although the Nasdaq trailed with a 0.9% decline. The return of a risk-off tone boosted gold and dragged oil prices and Treasury yields lower. Before the CPI report, the 2-year yield dropped 2.0 bps to 1.42% while the 10-year yield edged 3.2 bps lower to 1.60%. Yields were lower around the world, excluding an uptick U.K. gilts. U.K. yields rose and the pound rallied after the U.K.’s Chancellor of the Exchequer resigned, with analysts pointing to increased prospects for greater fiscal stimulus.
Powell Sings from the Same Song Book for a Second Day: Fed Chair Powell used different words to tell the same story during the second half of his congressional testimony on Wednesday. He expects that the impact of the coronavirus will show up in global data relatively soon, but again noted “it’s too uncertain to even speculate” about what that impact might be. Doubling down on his Tuesday remarks about policy yielding to unexpected slack in the labor force, a dovish paradigm, Powell noted that labor force participation has “greatly surprised to the upside,” adding “we think there’s more upside” from here.