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Volatility Surges, the Fed Takes Action with Rate Drop

Weekly Update – March 06, 2020

  • Global stock markets had a mixed week; the major U.S. indexes finished in the black after a string of up-and-down sessions. Volatility surged as coronavirus anxiety tightened its grip on sentiment; investors sought shelter in government bonds, pushing yields to unprecedented lows. The Federal Reserve tried to inoculate the economy from adverse impacts with a 50-basis-point rate cut, which ended up intensifying the selloff. The Fed also had to intervene in the overnight repurchase markets, adding another $100 billion as the demand for cash exceeded the repo market’s capacity. A strong jobs report helped the mood Friday, and stocks ended the week on an upbeat note.
  • The widely watched ten-year U.S. Treasury note ended the week at 0.71%; as a result, U.S. mortgage rates declined to 49-year lows. Oil prices fell on fears of weakening demand and the failure of OPEC and Russia to agree on production cuts. Gold had its best week in four years as risk-off sentiment predominated. The U.S. dollar declined against a basket of major currencies.
  • U.S. nonfarm payrolls increased by 273,000 jobs in February, the unemployment rate ticked down to 3.5% and wages increased 3% year-over-year. Jobless claims, a gauge of corporate layoffs, declined to an historically low 216,000 the prior week. The findings suggested that so far, the coronavirus is having a muted impact on economic data.
  • The J. P. Morgan Global PMI Composite Output Index contracted from 52.2 in January to 46.1 in February — its lowest reading since mid-2009. Manufacturing suffered a steeper downturn than services as new orders and international trade declined, particularly in China.
  • The final February reading of the IHS Markit U.S. Manufacturing Purchasing Managers’ Index posted 50.7, down from 51.9 at the start of the year. Markit’s Services PMI registered 49.4 in February versus January’s 53.4. By contrast, the February ISM non-manufacturing reading was 57.3, up from 55.5 the prior month.
  • The Commerce Department reported that the U.S. trade deficit narrowed to a seasonally-adjusted $45.34 billion in January, versus expectations of $46 billion. Economists attributed the easing to slowing trade flows during a time when the coronavirus’ impact was becoming more intense in China.

CPWM Weekly Market Monitor (2020.03.06)

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