February 24, 2020

Weekly Market Commentary February 17th to February 21st 2020

Housing Starts were stronger than anticipated in January at a 1.57 million annualized rate, while December figures were revised higher as well. A 1.55 million level on new Building Permits was the highest since 2007. Existing Home Sales grew at a 5.46 million annualized pace through January. Concerns of an economic slowdown were nowhere to be found in these reports.

Producer Price Index (PPI) rose 0.5% in January and 2.1% on a year-on-year basis, ahead of expectations. Services accounted for the vast majority of the increase while final demand goods inflation was modest. The Core PPI (excluding food and energy) was higher by 1.7% on an annualized basis.

FOMC Meeting Minutes were released. No incremental direction was provided on rates, expected to remain steady for the time being. Comments relating to the gradual winding down of the temporary support of the repo market (through short-term Treasury purchases) drew some attention in an otherwise uneventful report.

Accelerating fears relating to potential economic fallout from the spread of the Coronavirus drove investors to safe-haven assets. The flight to quality into U.S. Treasuries drove yields lower, including a new all-time low for the yield on the 30-Year U.S. Treasury which reached a new record low of 1.89% on Friday before closing the session at 1.91%. The 10-Year U.S. Treasury yield took a similar trajectory, closing the week lower by 11 basis points to 1.47%. The spread between the 10-Year and 2-Year Treasuries remains modestly positive at 12 basis points while the 10-Year to 3-Month spread is back to being inverted at -8 basis points.

In a topsy-turvy week for stocks, new record highs were reached for major U.S. equity indices at midweek before a pullback in the final two trading sessions pulled markets back to the first negative week of the month. The S&P 500 Index was lower by -1.3% at the final bell to 3,337. The NASDAQ declined by -1.6% to 9,576.

Key economic reports next week include New Home Sales, Durable Goods Orders and a revised estimate of Q4 GDP.