Prior week summary
In one of the most volatile trading weeks on record, the major U.S. equity markets moved modestly higher, and U.S. Treasury yields plummeted with the 10-year U.S. Treasury yielding just over 74 basis points at the end of the day on Friday, down nearly 40 basis points on the week. In a move not seen in over a decade, the FOMC moved the target range outside of an FOMC meeting date, slashing the target range 50 basis points to 1.00% –1.25% on Tuesday morning. After cutting the target range the Federal Reserve issued a statement pledging support for the U.S. economy during the virus outbreak saying, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.” Fed Funds futures now suggest that the FOMC will cut an additional 50–75 basis points at the conclusion of the next FOMC meeting on March 18 with a total of four 25-basis-point rate cuts priced in by the end of the year. The U.S. Congress began stimulus efforts last week, authorizing a $7.8 billion emergency spending bill to support several federal, state, and local initiatives aimed at preparing for and combatting the virus. Lawmakers indicated that they expect Congress will need to provide more emergency stimulus before the outbreak subsides. The world’s major oil producers met on Friday to discuss production cuts in a bid to support falling oil prices in wake of the continued spread of the virus. Breaking with the alliance, Saudi Arabia launched a bold oil price war on Saturday, offering record discounts in the U.S., Europe, and Asia. Brent crude fell over 20% in trading Sunday evening and sits just above $35/barrel.
U.S. economic releases for the week were mostly positive but largely took a back seat to virus-related developments. The February non-farm payroll report smashed expectations as the report indicated that the U.S. economy added 273,000 jobs over the month, and the unemployment rate moved down to 3.5%. The ISM Manufacturing Index fell below expectations to 50.1, but notably remained in expansionary territory, and updated figures on construction spending and the ISM Non-Manufacturing Index topped both analyst expectations and last month’s levels.
The look forward
In a light week for economic data, market participants will have an eye on inflation data in the form of the Consumer Price Index and the Producer Price Index. Equity markets look set to begin the week on volatile footing with the three major U.S. equity indices posting large declines in early Monday morning trading.
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