The Market Today

IMF Lowers 2020 Growth Forecast, Coronavirus Weighs on Investor Sentiment


by Craig Dismuke, Dudley Carter

THIS WEEK’S CALENDAR

Earnings Reports Cennter Stage with Quiet Economic Calendar: This week is quiet for the economic data.  There are two housing reports scheduled for Wednesday, two regional Fed indices, and the two Markit PMIs on Friday.  There is no Fedspeak as we are now in the quiet period preceding next Wednesday’s FOMC decision.  With the slow calendar, investors will remain focused on corporate earnings reports which, thus far, have been solid. This week will bring Procter & Gamble, Texas Instruments, IBM, Netflix, and several financials, to mention a few.


OVERNIGHT TRADING

U.S. Equities Set to Slip from Records: After closing in record territory last week (more below), U.S. equities appear set to pull back at the open amid a bout of weakness that has dragged down major equity indexes around the globe overnight. The biggest losses were recorded in Asia where a broad regional index closed down more than 1% Tuesday, with multiple outlets pointing to concerns about the contagious virus that has been identified in China. Concerns about the coronavirus, which has already killed several in China, are heightened considering its arrival lines up with a heavy-travel period for the Chinese Lunar New Year. Smaller losses were seen across European equities, with the Stoxx 600 down just below 0.4% around 7 a.m. CT, while U.S. equity futures had pulled back 0.3%.

Treasury Yields Edge Back Amid Softer Global Sentiment: Also keeping sentiment at bay, the IMF released its latest quarterly outlook which continued to project a slight acceleration in global growth in 2020, from 2.9% to 3.3%, but at a slightly slower pace than the 3.4% estimate it projected three months ago. The group did note that growth risks were “less skewed” toward the downside in large part because of the “intermittent” progress the U.S. and China had made on trade. That cautious optimism was also reflected in updated growth forecasts from the Bank of Japan for the next couple of fiscal years. However, the central bank lowered its inflation outlook and Governor Kuroda said “we need to continue to pay sufficient attention to those risks with a monetary policy that has a conscious easing bias.” Japan’s 10-year yield slipped 1.4 bps to -0.01%. Just after 7 a.m. CT, the 2-year Treasury yield was 1.9 bps lower at 1.54% while the 10-year yield had edged back 3.0 bps to 1.79%.


NOTEWORTHY NEWS

ICYMI – January 17, 2020 Weekly Market Recap: Stocks hit new records but Treasury yields barely budged in a week of developments that added to investors’ hopes for the global economy to pick up in 2020. After months of anticipation, the U.S. and China signed the phase one trade agreement. Before and after the deal was signed, an array of reports showed activity in China already improved more than expected near the end of the year. On the other hand, the U.S. joined the EU and Japan in lobbying the WTO for stronger rules against industrial subsidies, taking implicit aim at China. Sticking with trade, the Senate passed the USMCA to the president for his signature. On balance, the U.S. economic data were mixed. Manufacturing output inched up unexpectedly in December and a couple of regional Fed surveys beat expectations. However, small business optimism fell more than expected. Continuing the turnaround, three separate housing reports topped expectations. Job openings tumbled while other JOLTS’ metrics improved and jobless claims dropped back to a six-week low. Consumer confidence held up well while solid core retail sales in December were offset by negative prior revisions. Importantly, key inflation metrics remain subdued. Click here to see the net market impact of these developments.


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