Prior week summary
Despite global growth fears emanating from the worsening coronavirus outbreak in China and across the world, U.S. equities moved higher for a second week on the back of solid domestic economic data. China’s official figures saw roughly a 50% increase in infections last week as health officials at the center of the outbreak in the Hubei province altered the methodology for tallying the infected. As of Sunday evening, the new virus has infected over 72,000 and killed nearly 2,000 in China. China has reported that infections outside of the outbreak epicenter have steadily declined within the country over the last week as the country looks to restore public confidence in the government’s ability to fight the virus. Hoping to slow the spread of the virus and hasten the return of normalcy within the country, China has taken draconian prevention measures, imposing some form of lockdown on more than 760 million people. In the U.S., the infection count stands at 15 people, but that figure looks set to increase as the U.S. prepares to evacuate 14 infected citizens off the Diamond Princess cruise ship that has seen over 400 of the 3,700 passengers infected.
The economic releases for the week were largely positive and suggested strength and resiliency in the American consumer. Retail sales increased 0.3% month over month, on par with analyst expectations, driven by sharp increases in sales at home centers, bars, and restaurants. Market participants received updated figures on January inflation data in the form of the Consumer Price Index on Thursday. The index saw prices rise at a 2.3% yearly pace for the fourth consecutive month as inflationary pressures begin to firm modestly. Industrial production figures continued to show weakness, falling 0.3% over the month, in line with consensus estimates. Federal Reserve Chairman Jerome Powell testified on Capitol Hill before Congress on Tuesday and Wednesday. Powell reiterated support for the FOMC’s current stance on monetary policy but cautioned that the coronavirus presents a “new risk” and that its economic impact is “just too early to say.” Powell hailed the current positioning of the U.S. economy saying, “There’s nothing about this expansion that is unstable or unsustainable,” but noted, “We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.”
The look forward
Market participants are gearing up for a busy week as updated figures on the Empire Manufacturing Index, Philadelphia Federal Index, Producer Price Index, housing starts, building permits, and existing home sales, among others, are set for release. A host of Federal Reserve officials hold speaking engagements throughout the week.
Market implied policy path (Overnight indexed swap rates)
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