BMA Market Insights: Global Risk-Off Continues as COVID-19 Cases Surge Outside of China


Investors continue to sell-off risk assets and seek safe-havens such as U.S. Treasuries, Japanese Government Bonds (JGB), and Gold.

In China, nearly a third (⅓) of the total confirmed COVID-19 patients have now left the hospitals and the number of new cases appears to be slowing down. However, the number of COVID-19 cases outside of China has since surged over the past week with Italy and Iran scrambling to contain the virus. U.S. equity futures and USD rates point to sharp declines at the open as investors fear a prolonged global economic slowdown from the virus. The S&P 500 is pointing to a 2.26% lower open and the 10-year U.S. Treasury yield is down nearly 8bps to 1.390%.

Markit PMI Data

  • In the U.S., incoming economic data have remained mostly positive. However, the plunge in the Markit composite PMI in February last week suggests that economic growth could be set for a further slowdown in Q1 2020 as the temporary headwinds from the COVID-19 virus take their toll on global supply chains.
  • The unseasonably warm winter has undoubtedly boosted U.S. housing data as the “spring market”, kicked off as early as January this year. Further providing a boost in housing data is the marked decline in mortgage rates over the past 15 months. Despite fears over the impact on supply chains from the disruption in China, the manufacturing PMI actually held up relatively well, falling to 50.8 from 51.9.

Fed Minutes (January 2020)

  • While minutes from the Fed showed that the policymakers acknowledged new risks caused by the COVID-19 virus, the FOMC was cautiously optimistic about their ability to keep interest rates steady this year.
    • “Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting,” the Fed said in the minutes of the Jan. 28-29 meeting. It went on to say the current stance of monetary policy was likely to remain appropriate “for a time.”
  • The Fed minutes pointed to strong U.S. consumer spending levels, dissipating U.S-China trade tensions that consumed markets all of last year, and loose financial conditions (globally) as supporting their view.
  • The Fed expects consumer spending to “remain on a firm footing,” job gains to expand at a healthy pace, and a continued moderate economic expansion leading to its 2% inflation goal.
  • The U.S. economy is forecasted to grow at a steady 2.0% pace this year, according to the Fed.

Key events coming up this week:

  • Global investors will continue to monitor the economic fallout from the coronavirus
  • The U.S. Democratic presidential debate in South Carolina will be on Tuesday
  • The Bank of Korea announces its policy decision on Thursday
  • The U.S. Jobless claims, GDP, and durable goods data are out on Thursday
  • Japan’s industrial production, jobs, and retails sales data are due on Friday