February 17, 2020

Weekly Market Commentary February 10th to February 14th 2020

The headline Consumer Price Index (CPI) advanced by 0.1% in January and 2.5% on a year-on-year basis. The annual figure drifted higher due to the roll-off of particularly low energy prices a year ago. The Core CPI (excluding food and energy) was higher by 0.2% for the month and held steady at 2.3% over the past year. The data continues to show a slow measured pace of inflation.

Retail Sales in the U.S. rose 0.3% in January as anticipated but was revised lower by -0.1% for each of the last two months. The Control Group (which factors directly into GDP) was flat for January, indicating a slow start to personal consumption in the new year.

Fed Chairman Jerome Powell wooed markets (in advance of Valentine’s Day) into a further sense of complacency in his comments made before the House Financial Services Committee and Senate Banking Committee this week. He described favorable labor markets and sound economic conditions in the U.S. The Fed does not yet have a quantifiable assessment of the economic impact Covid-19 (Coronavirus) may have but will be assessing information (specifically noting supply chain disruptions) as it becomes available. He also agreed with concerns about the current level of the fiscal deficit. Despite having minimal room to use rate cuts as a mitigating tool in an economic downturn, the Chairman assured the Committees that other quantitative easing tools could be employed such as open market operations. He indicated the reduction of T-bill purchases in the repo markets will take place at a slow and steady pace.

The 10-Year U.S. Treasury yield closed the week 6 basis points higher at 1.59%. Equity markets rose despite the ongoing spread of Coronavirus sited by market pundits as an unknown risk to economic growth and corporate profits. The S&P 500 Index advanced by 1.6% to 3,380. The NASDAQ was higher by 2.2% to 9,731 as highflying technology stocks continue to lead market strength.

Key economic reports in the holiday-shortened trading week next week include Housing Starts, Existing Home Sales, Producer Price inflation and the release of the latest FOMC meeting minutes.