We aren’t fans of Hallmark holidays but markets did show us a little love on this week ending on Valentine’s Day.  All eleven U.S. sectors posted gains with the overall market enjoying gains of approximately 1.5%. Developed (0.40%) and emerging (1.78%) markets both managed respectable gains as well.  Commodities benefited from appreciation in oil (+3.4%) and several industrial metals while interest rates stayed flat and the USD managed gains of approximately 0.50%. Overall, risk markets moved higher despite a weak grasp of the truth and extent of Covid-19 implications.  The base-case expectation remains for Covid-19 to peak and begin receding by the end of the first quarter.

Market Anecdotes

  • Coronavirus (Covid-19) outbreak continued to alarm global health officials last week.  China has reported over 63,000 infections, 1,500 deaths, and 5,000 people treated and discharged.
  • Bespoke noted commodity markets (metals & ags) have tentatively started to follow equity markets in pricing out CoV fallout.  EUR slow bleed from 2018/19 has also picked up steam vs USD, Francs, Sterling.
  • Fed chair Jerome Powell testimony last week reiterated a wait-and-see approach but did signal a willingness/bias toward lowering rates in light of the uncertainties presented by the coronavirus outbreak.  Global supply chain disruption and economic vulnerability in China were referenced.
  • U.S. government deficits were profiled last week as the government reported a higher deficit than expected with outlays hitting new record highs.  The administration budget proposal topped $1t for the coming fiscal year.
  • U.S. Treasury conducted its first auction of the year with 30yr UST bonds garnering strong bids despite record low 2.061% yields.
  • EIA inventory data showed much higher levels than forecasted (7.5mm bbls vs 3.2mm bbls) resulting from production rising back to record 13mm bpd and higher imports.
  • The one-month put/call ratio has plunged in recent days, indicating aggressive sentiment from opposition markets.
  • Domestic equity and ETFs over the past three months has seen outflows greater than all but 3% of prior observations, an amazing outflow of funds.
  • At the same time, flows into fixed income funds have been truly massive, with one- and three-month rolling sums larger than all but a bit less than 1% of prior occurrences.

Economic Release Highlights

  • Headline and core January CPI both came in slightly higher than expected with headline of 2.5% vs 2.4% and core of 2.3% vs 2.2%.
  • The December JOLTS report continued its noticeable trend lower in job openings (6.423mm) which suggests a future slowing of job creation.
  • January retail sales report produced another moderate to solid monthly gain of 0.3%, with the less autos & gas growing 0.4%.  However, the control group missed expectations at 0% vs 0.3%.
  • Industrial production was down 0.3% in January, in line with expectations but a 5th consecutive YoY decline.  The manufacturing sector is still working its way out of its downturn.
  • February (p) U of M consumer sentiment added to January’s 0.5 gain, coming in at 100.9 signaling healthy sentiment on the economy and overall financial conditions.