Monday Musings: March 2, 2020

Mar 02, 2020

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Public Trust Credit Team
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Coronavirus prompts response from Central Banks

Chairman Powell said on Friday that the U.S. central bank is prepared to cut interest rates to cushion the economy against the effects of the virus. This sentiment was echoed today by the Bank of Japan, stating it was also prepared to take action. As of Monday morning, Fed futures were pricing in a 100% chance of a 25 basis point rate cut for the Fed’s March meeting and a 30% chance of a 50 basis point cut. The response from the Federal Reserve was enough to infuse confidence in the market, prompting a rally in major indexes, but the real longer-term effects hinge on how quickly the Fed feels it can increase rates after the virus fears have passed.

The Organization for Economic Cooperation and Development (OECD) cut global growth forecasts across the board

The global economic forecaster lowered its projection for global growth this year to 2.4% from its prior forecast of 2.9%. It is important to note that this represents the agency’s “best case” growth rate scenario for this year. China received the largest estimate change, with the OECD now expecting Chinese GDP to grow by only 4.9%, down from the 5.7% expected at the beginning of the year. At this time, the effects would become much less severe outside of China, but this is only the first global forecasting agency to produce detailed forecasts of the potential economic effects of the coronavirus.  

China's manufacturing PMI shows the virus has begun to seep into the data

IHS Markit released the February manufacturing PMI for China showing a stark decrease in activity. February’s print came in at 40.3 versus 51 in January (a value below 50 signals a contraction of the sector). This is the first major piece of economic data to come out of China that signals a sharp slowdown in activity and provides context to the effects of the factory shutdowns that occurred in February. Currently, the direct impact of the coronavirus on manufacturing activity primarily affects Asia. By contrast, the U.S. ISM Manufacturing PMI logged its second month of expansion. However, the supply chain bottlenecks and trade lags resulting from the coronavirus will likely continue to pressure the manufacturing sectors of all major global economies.  
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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