Market news 6 March 2020

Seldom have economic data been more roundly ignored by markets (all eyes on the Covid-19 spread data)

• The Chinese Caixin (private sector) services PMI fell to a record low level of 26.5 in February (series goes back to 2005) and the manufacturing PMI to a record low of 40.3
• The official Chinese PMIs were similarly (albeit expectedly) grim at 35.7 for the manufacturing PMI and 29.6 for services
• The JPMorgan all-industry PMI fell by 6.1pt in February, its largest one-month drop on record. The reading of 46.1 is the lowest since May 2009 and implies global GDP growth of just 0.8% (annualized)
• Business survey data in the UK, euro area and US were surprisingly robust but that is likely to change materially next month
• US nonfarm payrolls rose 273k in February, +98k above consensus and a strong pace even after considering a weather-related boost of circa +70k. The unemployment rate fell back to 3.5%

central banks delivered emergency inter-meeting easing

• At an unscheduled policy meeting this week (the first since October 2008), the Fed cut rates by 50bp, to 1.00-1.25%. The Bank of Canada and Hong Kong Monetary Authority also delivered 50bp cuts and the Reserve Bank of Australia a 25bp cut

but there was no respite for equities

• After rebounding in the early part of the week, equities resumed declining into the weekend as novel coronavirus cases continued to accelerate outside of China and the ability of monetary policy alone to battle the pandemic in the absence of a co-ordinated government policy response came into question
• Crude oil also tumbled to the lowest levels since mid-2017 on the deteriorating growth outlook, with the move exacerbated by the conclusion of OPEC+ talks without any agreement to restrict output
• Government bond yields plunged to record lows (10-year US treasuries 0.70%, UK gilts 0.20%, German bunds –0.75%)
• Some kind of concerted international response will have to be announced over the weekend, along the lines of: the Federal Reserve providing unlimited dollar liquidity to the world via swap lines with other central banks (as in the crisis phases in 2008 and 2011), the formation of a global heads of government steering committee on corona response, the announcement of emergency fiscal funding for countermeasures (the $8bn passed by Congress this week is not remotely enough), etc
• Otherwise market conditions will continue to deteriorate next week as the rate of increase in novel cases outside of China continues to grow
• The market needs to be convinced that a solution to corona will be delivered which doesn’t involve provoking a global recession via mass quarantining and a standstill in normal business activity