February 10, 2020

Weekly Market Commentary February 3rd to February 7th 2020

Concern over the Coronavirus continued this week with over 31,000 cases reported in China and the first cases of human-to-human transmission being confirmed in the US. Other major headlines included the acquittal of President Trump and chaos at the Iowa Democratic caucuses where candidate Pete Buttigieg ended up on top, for now.

Economically speaking, the PMI Manufacturing Index came in above expectations at 51.9. The Services Index also beat consensus reported at 53.4. The Institute for Supply Management (ISM) manufacturing report was also positive at 50.9, well above the 48.7 expected. This is the first time the index has been above 50 (expansionary territory) since July 2019. Similarly, the ISM non-manufacturing index came in at 55.5.

ADP’s private payroll crushed expectations coming in at 291k vs consensus of 154k. Non-farm payrolls increased by 225k after an upwardly revised 147k gain in December. Private payrolls increased 206k vs consensus of 150k. Average hourly earnings increased to 3.1% year over year and the participation rate climbed to 63.4% from 63.2%. The unemployment rate edged up to 3.6%, still near a 50-year low.

Other notable reports for the week were construction spending, which disappointed at -0.2% vs consensus of 0.5% and factory orders that surprised to the upside coming in at 1.8% vs consensus of 1.3%.

The yield on the 10-year Treasuries increased 7 basis points from a week ago, finishing the final session at 1.58%. The 2-Year/10-Year U.S. Treasury spread narrowed to 18 basis points by the end of the week.

Equity markets largely shrugged off Coronavirus concerns in the beginning of the week but with new reports of further infections, more deaths and more quarantines, the economic fallout is starting to materialize. On Friday, U.S. equities halted a four-day rally, with the S&P 500 Index finishing the day 0.5% lower. Overall, the Index finished positive for the week at 3,329.

Key economic reports next week include CPI and PPI inflation reports and Retail Sales.