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Coronavirus, manufacturing, and home sales

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The coronavirus is spreading and now getting more attention in the global economic outlook. Until the last couple of the days, the virus was thought to be contained mostly in China and that it would not have a serious impact on the US economy, at least based on how the stock indexes were setting new records almost daily.

Novel Corona Virus (COVID-19) Starts Economic Impact

This week, that may have changed, the stock market erupted into a volatile session sending the DJIA down over 300 points before bouncing back to end the day down just 128. We wouldn’t call yesterday a turning point for the equity market outlook, but with news of more virus outbreaks, it can’t be ignored. The 10 yr this morning has broken a crucial resistance level at 1.50%, trading at 9:00 am ET at 1.48% -4 bps, and stock indexes were slipping, DJIA -137.

South Korea is reporting a surge in infections. China adjusted the number of cases for the third time this month, raising more questions over the reliability of the data. South Korea reported 100 more cases, taking the total number to 204. Neighboring Japan is also seeing outbreaks in several unconnected areas. Singapore reported recoveries outpacing new cases. The spread in Chinese prisons outside of the epidemic’s epicenter in Hubei, 234 cases ended 16 straight days of declines. The run to treasuries on safety is pushing the 10 yr lower, gold at 9:00 am ET +$27.00, crude oil down $1.05.

China’s stock market is on the rebound after being slammed when the virus outbreak began, a bounce that only brings some of the enormous losses back but still lower than mid-January. China has, in the past weeks, cut short and medium-term policy rates, pumped billions into the financial system and lowered corporate taxes. Beijing has hinted there’s room to do more on the fiscal and monetary front. “The market’s performance far exceeded expectations after the Lunar New Year,” said Ma Cheng, chairman at Shenzhen Juze Investment Management Co. “Investors are encouraged by the easing policies and rising momentum in the stock market, which led to more and more investors to pile in.” Even in China, the virus fears are lessening, as if the virus is no more than a regular flu outbreak.

At 9:45 am ET, the PMI manufacturing composite flash index was expected at 52.5 from 53.1; as released 49.6, manufacturing expected at 51.4, as released 50.8, services expected 53.33 dropped to 49.4. Germany’s flash February Manufacturing PMI rose to 47.8 from 45.3 (expected 44.8), and flash February Services PMI decreased to 53.3 from 54.2 (expected 53.8). UK’s flash February Manufacturing PMI rose to 51.9 from 50.0 (expected 49.7) while flash February Services PMI decreased to 53.3 from 53.9 (expected 53.4). France’s flash February Manufacturing PMI fell to 49.7 from 51.1 (expected 50.7), and flash February Services PMI rose to 52.6 from 51.0 (expected 51.3).

Housing, Mortgage and US Economy

At 10:00 am ET, January existing home sales were expected at 5.45 mil from 5.54 mil originally reported in Dec; as released down 1.3% to 5.46 mil. For the second straight month, overall sales substantially increased year-over-year, up 9.6% from a year ago (4.98 million in January 2019). The median existing-home price for all housing types in January was $266,300, up 6.8% from January 2019 ($249,400), as prices increased in every region. December’s price increase marks 95 straight months of year-over-year gains.

Treasuries are declining, and gold is increasing. The 10 yr note yield so far this week down 11 bps while gold increased $56.00 so far this week. The dollar index jumped 0.56 to 99.68 so far. Mortgage interest rates haven’t moved much, all trades have been safety movements. Housing inventory at the end of January totaled 1.42 million units, up 2.2% from December, but down 10.7% from one year ago (1.59 million). The housing inventory level for January is the lowest level since 1999. Unsold inventory sits at a 3.1-month supply at the current sales pace, up from the 3.0-month figure recorded in December and down from the 3.8-month figure recorded in January 2019.

Source: TBWS

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