The Market Today
Virus Fears Raised as Spreads Outside of China
by Craig Dismuke, Dudley Carter
Coronavirus Update: While growth in newly confirmed cases in China has slowed this week, there are new concerns emerging about new areas of growth. The number of confirmed cases in South Korea has ballooned after believing to have been transmitted through a local church. As of Tuesday, there were officially 26 confirmed cases in the country. That figure is now up to 204. There are other areas of conveyance outside of China which are increasing fears. Additionally, the case fatality rate continues to climb, reaching 3.0% after this morning’s updates. To see our updated Coronavirus Chartbooks, please click here.
U.S. PMIs and Existing Home Sales: The Markit manufacturing, services, and composite PMIs for the U.S. are scheduled for release at 8:45 a.m. CT. The manufacturing index is expected to show weakness while the service-sector index is expected to remain in modest territory. At 9:00 a.m., the January existing home sales data is expected to show sales pull back 1.8% after increasing 3.6% in December.
Fedspeak: There is a handful of Fed speakers on the tape today. Dallas Bank President Kaplan (voter), FOMC Governor Brainard, Atlanta Bank President Bostic (non-voter), FOMC Vice Chair Clarida, and Cleveland Bank President Mester (voter) are all scheduled to make comments. Key will be any discussions of the monetary policy framework review and mentions of how the coronavirus might be affecting individual voters’ outlook for policy this year.
Stocks Retreat on Virus Worries: U.S. assets reflected less optimism on Thursday despite solid U.S. economic data and a surprisingly low number of new virus cases reported by China. A regional Fed survey surged to its strongest level since 2017 and jobless claims remained low. However, the lower number of new cases in China was tarnished somewhat by another tweak to China’s protocol for defining a confirmed case. U.S. equities initially dropped into a weak global session, but gradually climbed into positive territory by mid-morning. However, the major indices plunged in the first half of the ten o’clock hour, with analysts pointing to resurgent worries about the virus spreading. South Korea reported a significant jump in its case count overnight and an official with the WHO said the case load outside of China remained low, “but that may not stay the same for very long.”
Risk-Off Raised the Price of Gold, Treasurys: The developments sent investors back into risk-off mode, reminiscent of the tone from earlier in the week following Apple’s revenue warning and a larger-than-expected drop in economic confidence in the Eurozone. The S&P 500 closed down -0.4%, but well of its worst print of -1.3%. Gold prices rose to eclipse yesterday’s seven-year high, Brent crude fell for the first time in eight sessions, and Treasury prices rallied. By the time markets closed the 2-year yield had pulled back 3.3 bps to 1.39% while the 10-year yield shed 5.1 bps to 1.52%. The spread between the 3-month Treasury yield remained above the 10-year yield for a sixth session, finishing at the deepest inversion since the first half of October. The 30-year bond yield closed at 1.96%, within 1 bp of its all-time low from August.
Virus Fears Linger into Friday: The virus fears that dented market sentiment yesterday lingered into Friday, keeping global equities under pressure and supporting the price of gold and U.S. Treasurys, despite a bit of good news out of Europe. Yesterday’s renewed fears that the spread of the COVID-19 virus outside of China could intensify were caused in part by a notable jump in infections in South Korea. The country reported another large jump in new cases overnight to take the total number of infected above 200, the most for any country outside of China (excluding the ship docked in Japan). South Korea’s KOSPI index slumped 1.5%, among the worst performers in Asia. Shares in Japan slipped 0.4% after a top economic composite PMI dropped from 50.1 to 47.0, the lowest since April 2014 and further evidence of the country’s economic woes.
Eurozone PMIs Perk Up, But Safe Haven Bid Remains Strong: Europe’s Stoxx 600, however, has gradually erased an opening drop following unexpected improvements in Eurozone PMIs. The euro has been battered in recent weeks by concerns the virus will snuff out early signs of economic stability in the bloc. While that is certainly still possible, the manufacturing PMI rose 1.2 points to 49.1 in February, a twelve-month high, while services inched up to 52.8, lifting the composite to 51.6, its best since August. While those results stabilized European stocks and yields for now, gold rose for a fifth day to a new seven-year high and Treasury yields moved lower. Just after 7 a.m. CT, the 2-year yield was down 1.2 bps to 1.37% and the 10-year yield was 3.2 bps lower at 1.48%, within 3 bps of its September’s low, which was 10 bps above its all-time low of 1.358% from the Brexit aftermath of 2016.