Prior week summary
The major U.S. equity indices moved lower for the week for the first time since early February as the Wuhan coronavirus continued to spread across the globe, renewing global growth concerns and clouding the outlook for the global economy. According to China’s official figures, infections in mainland China topped 77,000 with nearly 2,600 fatalities resulting from the virus. While China has continued to assert that infections are on the decline throughout the country, including the Hubei province, the epicenter of the outbreak, reports in the middle of the week suggested that the Chinese government was imposing increasingly strict lockdown measures, most notably within the capital city of Beijing. Further dampening investor sentiment, South Korea, Japan, and Italy have reported over 100 infections each, increasing fears that the new virus will turn into a global pandemic. Infections in South Korea have reached over 700 prompting the government to cancel school across the country and ban mass gatherings, as they work to contain the spread of the virus. In the U.S., 35 people have been infected with the majority of this week’s new cases stemming from the inclusion of American citizens evacuated from Wuhan and the Diamond Princess cruise ship. In a press conference on Friday, the CDC warned that the virus may eventually take hold in the U.S. saying, “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen,” and noted, “Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.”
The economic data releases for the week were largely positive, particularly for the housing sector. Housing starts, existing home sales, and building permits in January significantly topped analyst expectations. After last week’s Consumer Price Index release suggested that inflationary pressures are beginning to firm, the Producer Price Index increased 0.5% month over month, well above analyst calls for a 0.1% increase. The manufacturing sector received encouraging news early in the week as both the Empire Manufacturing Index and the Philadelphia Federal Index topped consensus estimates, but Friday’s release of the IHS Markit purchasing manager’s index saw the measure post its worst level since October 2013.
The look forward
Market participants are gearing up for another busy week of economic data releases as updated figures on new home sales, durable goods orders, consumer spending, and fourth-quarter GDP, among others, dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
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