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February 13, 2020

Haven Assets Rise as Coronavirus Cases Unexpectedly Climb

 

Rates fall across the curve amid surprise jump in coronavirus cases. Official cases of coronavirus in China jumped 15,000 overnight, bond yields and equity futures slipping lower as a result. The jump in official cases was associated with a change in measurement standards, and came largely from the capital city of Wuhan. Once that standard is rolled out nationally it’s broadly expected that the number of cases will continue climb higher. Fed Chair Jerome Powell touched on the risk the coronavirus poses to global supply chains in his testimony before Congress yesterday, cautioning that it’s too early to know the full economic impact of the virus, but adding that it’s “very likely” there will be some effects on the US economy. Despite the near-term implications, 80% of the economists surveyed by the Wall Street Journal estimate a small impact on US GDP growth. The 10-year Treasury yield is 2 basis points lower this morning, falling to 1.62%.

 

 

Consumer Price Index shows inflation remains subdued. Headline CPI rose 0.1% (0.1% lower than forecasted), core CPI in turn rising 0.2% month over month. The lukewarm inflation figure continues the trend of stubbornly low inflation that persisted throughout 2019 - core CPI remaining well below the Fed’s objective. Fed Chair Powell remained optimistic in his testimony before Congress this week, telling lawmakers that he expects inflation to move closer to 2% over the coming months.

 

 

Day ahead. The Senate Banking Committee will hold a hearing for Federal Reserve nominees July Shelton and Christopher Waller this morning. While Waller represents an establishment nominee, Shelton’s nomination will garner close scrutiny given her decades-long affinity for the gold standard and public bashing of the central bank. Later in the day, Dallas Fed President Robert Kaplan and New York Fed President John Williams will both speak on their economic outlook. The Fed will release their weekly balance sheet figures this afternoon.

 

 

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