Strong economic data outweighs virus fears

February 10, 2020 Chatham Financial

Prior week summary

The major U.S. equity indices rebounded last week, moving higher and nearing or setting all-time highs as a perceived moderation in the Wuhan coronavirus outbreak and encouraging domestic economic data worked to buoy investor sentiment. According to China, the new virus is responsible for over 40,000 infections and 900 fatalities on the mainland with the majority of cases originating from the Hubei province, the epicenter of the outbreak. In an attempt to control the spread of the virus, China has kept the Hubei province locked down and delayed the reopening of many manufacturing plants across the country. On Thursday, China announced that it will halve tariffs on $75 billion of U.S. goods as it grapples with the virus, but U.S. Secretary of the Treasury, Steven Mnuchin, said that he expects that China will still be able to deliver on purchase commitments made in the phase-one trade agreement. The Federal Reserve Board warned that the virus presents a “new risk” to the global economic outlook on Friday saying, “Because of the size of the Chinese economy, significant distress in China could spill over to U.S. and global markets through a retrenchment of risk appetite, U.S. dollar appreciation, and declines in trade and commodity prices.”

In a busy week for economic releases, the results were largely positive. The ISM Manufacturing Index moved into expansionary territory for the first time in six months, posting a level of 50.9, well above the 48.5 expectation. While the rebound in the manufacturing sector is a welcome development, many have cautioned that the January figures do not capture the impact of the coronavirus, and the index may slip back into contractionary territory in February. Both the ISM Non-Manufacturing Index and construction spending updates also topped consensus expectations later in the week further improving sentiment. All eyes were on the employment situation this week, however, as both the ADP employment measure and the January non-farm payroll report smashed expectations. According to the non-farm payroll report, the U.S. economy added 225,000 jobs in January, significantly higher than the 165,000 expectation, and much improved over the December figure that saw 147,000 job additions. Additionally, average hourly earnings increased 3.1% year over year and the unemployment rate moved higher to 3.6%, largely due to increased participation in the labor force.

The look forward

Market participants are looking forward to the release of updated figures on the Consumer Price Index, retail sales, industrial production, and a consumer confidence measure, among others. Federal Reserve Chairman Jerome Powell heads to Capitol Hill where he will testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday.

Rates snapshot


Market implied policy path (Overnight indexed swap rates)

Source: Chatham Financial



Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 20-0031

Previous Article
Equities continue to rally despite virus fears
Equities continue to rally despite virus fears

Despite global growth fears emanating from the worsening coronavirus outbreak in China and across the world...

Next Article
Equities and yields fall as new virus spreads
Equities and yields fall as new virus spreads

Despite a strong start to fourth-quarter corporate earnings season, U.S. equities and Treasury yields tumbl...


Subscribe to Chatham's Weekly Market Insights

First Name
Last Name
Company Name
Thank you!
Error - something went wrong!