Morning Report: Rates down as coronavirus infects the market

Vital Statistics:

Last Change
S&P futures 2910 -40.25
Oil (WTI) 44.97 -1.79
10 year government bond yield 1.05%
30 year fixed rate mortgage 3.44%

 

Stocks are lower as the Coronavirus knocks down global equities. Bonds and MBS are up.

 

Washington State has reported the second US death due to Coronavirus, and one case has been reported in New York City. Globally there have been 87,000 cases and 3,000 deaths. The total number of confirmed cases in the US is 75. Most of the cases center around a nursing home in Kirkland, WA.

 

The 10 year is trading close to 1% as the market is anticipating a move out of the Fed, the ECB, and maybe the Bank of Japan to lower rates.  Fed Chairman Jerome Powell made a statement on Friday saying:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

This statement caused a big shift in the Fed Funds futures. The March Fed Funds futures are now calling for a 50 basis point cut. My guess is that we would have an intra-meeting cut if the sell-off continues this week, and then another 25 basis points in March. Oh, and guess what the central tendency is for December. 50 – 75 bps in the FF rate. In other words, 100 basis points in cuts this year.

fed funds futures march 2020

 

Those sorts of moves seem to anticipate a recession in the US this year. Unless this turns into a major pandemic in the US, that seems unlikely. You generally don’t see recessions with 3.6% unemployment. However, supply shocks out of Asia will definitely slow things down. FWIW, the Fed Funds futures are predicting a recession, and that seems to be a stretch unless you start seeing tens of thousands of cases in the US.

 

The OECD is predicting that the coronavirus will lop about .5% off global growth this year, from 2.9% to 2.4%, which is a best case scenario. This scenario assumes that Coronavirus remains largely contained in Asia. If major outbreaks happen in Europe and the US, we would be looking at 1.5% global growth this year.

12 Responses

  1. Caught an interesting documentary on EPIX last night, Slow Burn which is covering Watergate and has some interesting tidbits I never knew about, such as the crash of United Airlines Flight 553 with the wife of E. Howard Hunt aboard and the kidnapping of Martha Mitchell, wife of the Attorney General.

    https://www.epix.com/series/slow-burn

    Liked by 1 person

  2. This should be interesting:

    https://thefederalist.com/2020/03/02/republican-donor-buys-major-twitter-stake-with-plans-to-oust-ceo-jack-dorsey/

    Conservative billionaire and hedge fund manager Paul Singer, and his company Elliott Management Corp., bought a sizable stake of Twitter with alleged plans to oust CEO Jack Dorsey over Twitter’s overt political bias.

    According to Bloomberg News, Twitter’s Board of Directors will have three available seats at the 2020 annual meeting. Elliott nominated four directors in hopes of filling these vacancies and any others that may arise. Unlike other prominent Silicon Valley CEOs, Dorsey does not have voting power over Twitter because the company only has one class of stock.

    Dorsey has long been a target for removal given Twitter’s struggling user growth, poor stock performance, free speech issues, and overt political bias commonly known as “shadowbanning.”

    Liked by 1 person

  3. Hmmmm….

    Liked by 1 person

  4. So @brentnyitray: What’s up with the stock market rally?

    I feel like a lot of anti-Trump people were very sad today. Not that it won’t dip again tomorrow, but still.

    Like

    • Markets don’t go straight up or straight down… imo the markets have overreacted…

      Like

      • Walter kind of thought the markets were ripe for a correction. I’m not sure what’s going on but if I hadn’t already cashed out of my stocks I would probably be looking for something to buy.

        Like

    • I think the weekend gave everyone time to catch their breath and take a reality check. Then the bargain hunters came out.

      Or it could be a dead cat bounce.

      Decent piece on the big picture:

      Like

  5. Trying to give you all something to laugh about tonight…………..I cook in the kitchen (obviously) while Walter sits in his recliner watching the news, which I hear but don’t really see…………..because I’m busy cooking. Sooooooo, a Bloomberg commercial comes on and I hear a very recognizable voice endorsing him and all the reasons why. I said “Wow, that’s judge Judy endorsing Bloomberg” and Walter said……….”I thought that was his WIFE”.

    Like

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