Tuesday, March 3, 2020
Following a huge buying day in the markets, which saw the Dow climb 5% to its highest single trading day in history (up nearly 1300 points), the S&P 500 up 4.6%, Nasdaq +4.5% and the Russell 2000 +2.85%, a hastily arranged meeting of central bankers from the Group of Seven countries (G7) this morning provided no fiscal measures to counter the deep market selloff due to the global coronavirus crisis. The Dow immediately dropped another 250 points on the news, but is climbing back toward positive territory in today’s pre-market.
The finance ministers of the G7 — U.S., U.K., Germany, Japan, France, Canada and Italy — said they “stand ready to fight the coronavirus downturn,’ but offered no concrete proposals for combatting the possible pandemic. The leadership, brought together by U.S. Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell, said they would take action “where appropriate,” but have yet to articulate what or when that would be.
This contrasts with the last time the G7 bankers were brought together in short order — back during the mortgage bubble collapse that brought the global economy to a Great Recession in 2009. At that time, the G7 did move to accommodate global markets right away. Then again, their action 11 years ago came with a general understanding of the scope of the challenges before us. With the coronavirus, we still don’t have sufficient testing data reported to tell us how severe and widespread the disease is.
The Fed may still slash interest rates to unleash some liquidity into the markets, the specter of which bounced market indexes back yesterday. But whether the Federal Reserve will move to convene ahead of its scheduled meeting two weeks from today — and whether a cut to interest rates from already historically low 1.75% would be by more than 25 basis points, which some investors are looking for — is far from certain.
Again, the data regarding the depth and breadth of the coronavirus outbreak is far from complete, and may not yet be appropriately actionable. As testing kits are made more readily available, we should get some key articulation on this issue.
Yesterday, PMI and ISM Manufacturing data for February came in slightly below expectations. PMI’s 50.7 was only a tenth light of its January headline, though ISM’s 50.1% missed the 50.5% expected and the 50.9% reported a month earlier. In other economic news yesterday, Construction Spending for January doubled expectations to 1.8%, and well ahead of the +0.2% reported for December. Are we seeing a bounce-back in construction after a dismal past few months? This data, and reports elsewhere, would indicate we are.
Tomorrow, we get PMI and ISM Non-Manufacturing data, along with a fresh report from Automatic Data Processing ADP private-sector payrolls for February. Last month, new private-sector jobs blew the doors off expectations at a total of 291K. Can this next leg of the years-long robust labor market continue apace? Between the ADP report and Friday’s non-farm payrolls to be released from the U.S. Bureau of Labor Statistics (BLS), we should get some answers here, as well.
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