Markets remain cautious as the death toll related to the Coronavirus mounts in mainland China. Questions remain as to the extent of contagion as deaths have quadrupled within a week to 350+ in China. Fears have risen with an additional death being recorded in the Philippines late last week, as scientists work to create a vaccine.
For markets, questions persist around the potential real economic cost; SARS was ~$40bn, and though more deadly, it was less widespread. Last week equity markets lost the early gains from the month to finish roughly flat while the US 10 year yield moved to its lowest levels since early October.
Ripple effects from the potential China slowdown can be felt around the globe as commodities and transportation sectors have taken hits. Bloomberg estimates that Chinese oil demand is down ~20% given the virus related travel ban.
At the moment, markets seem to think the US and Europe can weather this storm as we seen a reversal in risk sentiment this morning.
Brexit risk perked up with the Sterling slipping after PM Boris Johnson began the 11-month EU negotiation in an aggressive manor, giving rise to a higher probability of a hard-Brexit.
Earnings have thus far been broadly positive with another heavy week of reports ahead. The key data points this week will be the January jobs report and average hourly earnings on Friday.
Congrats to the Kansas City Chiefs on winning the Super Bowl!
MTD Returns as of EOD Friday 01/31/20
US Barclays Agg +1.92%, 2.02% yield (-26 bps), -34 bps excess returns
US Barclays Corp +2.34%, 2.58% yield (-25 bps), +2 bps excess returns
UST 10yr 1.50%, -41 bps
S&P 500 -0.16%
OIL (WTI) $51.63, -15.6%
*Excess returns are returns achieved above and beyond the return of similar duration US Treasuries
Spring has sprung and with it, more economic activity and hopes for a more sustained recovery emerge.
We sat down to interview two of IMTC's senior managers on their perspective as former fixed income portfolio managers.