By Lorcan Roche Kelly
Promises and action
A rare statement from Federal Reserve Chair Jerome Powell promised action should it prove necessary, and heralded a round of responses from central banks on how they will cope with coronavirus risk. In the wake of the Fed’s remarks before the close of trading Friday, the Bank of Japan said it would “ensure stability in financial markets” and followed up with a $4.6 billion repo operation, with data showing it had also bought a record amount of stock funds. The Bank of England also said it was working to ensure steps are taken to protect financial and monetary stability. France’s Finance Minister Bruno Le Maire said that the Group of Seven finance ministers will hold a teleconference this week to discuss a coordinated response.
The initial reaction from markets to the policy-maker interventions was positive, with Asian stocks staging something of a recovery, but the move is fading during the European session. The MSCI Asia Pacific Index rose 0.8%, with Japan’s Topix index closing 1% higher. In Europe the Stoxx 600 Index rallied as much as 2.3% before reversing those gains to trade broadly unchanged by 5:50 a.m. Eastern Time. It is a similar story with S&P 500 futures that are well off their earlier highs. The conviction trade getting one-way traffic? Treasuries with the yield on the 10-year benchmarks falling below 1.1%.
The death toll from the outbreak has passed 3,000 with new cases continuing to emerge around the world. New York City, Brussels and Berlin reported their first infections. The OECD this morning slashed its GDP forecast, warning that a contraction in global growth is possible this quarter. It now predicts a 2.4% expansion for this year, which would be the weakest since 2009. Concerns are growing in the U.S. that the policy response from the White House may not be sufficient, with medical experts and lawmakers warning that a surge in cases could quickly overwhelm hospitals and lead to supply shortages.
The large field of candidates for the Democratic presidential nomination was thinned further when both Pete Buttigieg, who had won the delegate race in Iowa, and billionaire Tom Steyer ended their campaigns. Front-runner Bernie Sanders is still heavily favored to come out on top in tomorrow’s Super Tuesday, despite Joe Biden’s overwhelming victory in South Carolina at the weekend. Michael Bloomberg said that he would continue his campaign even if he doesn’t finish in the top three tomorrow. (Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)
Investors will be looking for confirmation of a continued expansion in U.S. manufacturing when Markit PMI for the sector and ISM Manufacturing are published at 9:45 a.m. and 10:00 a.m. respectively. Also at 10:00 a.m., construction spending for January is expected to show a return to growth. Among the companies reporting earnings today are Eagle Pharmaceuticals Inc. and Tilray Inc.