The Market Today

Coronavirus Fears Ease Up For Now


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Quiet Day Wraps up Quiet Week – Markit PMIs: Today’s calendar will bring the January manufacturing, services, and composite PMIs from Markit.  There is expected to be fractional improvement in each.

 

YESTERDAY’S TRADING

U.S. Equities Shook Off Global Viral Infection: After virus fears rocked global markets again overnight, U.S. equities struggled for gains and Treasury yields fell for a third session in a row. China’s CSI 300 plunged 3.1% to lead Asian stocks lower by 0.7%, a loss matched later by Europe’s Stoxx 600. After dropping sharply at the open, however, U.S. equities slowly climbed back throughout the session to push the S&P 500 up by 0.1% at the close. The Dow posted a small 0.1% decline on a heavy drag from shares of Travelers. The insurance conglomerate saw its stock price slide more than 5% after its quarterly earnings results were posted. Energy persisted as a drag as commodity prices continued to suffer from worries that travel disruptions caused by the virus could crimp demand. There were announcements throughout the day that China continued to place millions more, across multiple cities, on lockdown.

Treasury Yields’ Trek Lower Continued: Treasury yields continued their recent trek lower, although the curve finished up off its mid-morning lows. The 2-year yield edged back 1.5 bps to 1.51%, a new low back to October 9, two days before President Trump announced the U.S. and China had reached a phase one trade deal. The 10-year yield fell more, pulling back 3.7 bps to 1.73%. Thursday’s final level was the lowest since December 3, and the second-lowest level since early November. Both finished near the bottom of their three-month ranges.


OVERNIGHT TRADING

Equities Recover as China Kicks Off New Year Under Cloud of Coronavirus: Despite the number of deaths and diagnoses related to the coronavirus rising further overnight, the tone underlying the global equity market has improved. Chinese markets were closed as the New Year holiday kicks off under the clouds of the virus, while equities across the rest of Asia mostly inched higher. Stock gains in Europe were stronger, pushing the Stoxx Europe up 1.2% by midday. The number of Chinese that face travel restrictions within the country has grown to tens of millions as the death toll has risen to 25 and the number of infected to more than 800. After convening to discuss the virus, the World Health Organization’s President said the group decided, “this is an emergency in China, but it has not yet become a global health emergency.”

German PMIs Improve: In Europe, the first PMI estimates for January signaled stronger-than-expected activity in Germany to start the year. While Europe’s largest economy saw manufacturing contract for a thirteenth month, 45.2 was the best level since February 2018. With the services PMI also better than expected at 54.2, the composite index pushed up for a fourth month to 51.1, a five-month high. Still, French results were mixed and the Eurozone-wide composite held at 50.9 instead of gaining to 51.2 as expected. The index has leveled off in recent months after a sharp slide in 2018, leading to hopes of stability. ECB President Lagarde said yesterday that recent data suggests “some stabilization in euro-area growth dynamics.” While European yields were marginally higher, Treasury yields were little changed at 7:20 a.m. CT. The 2-year yield was up 0.6 bps at 1.52% while the 10-year yield held steady at 1.73%.


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