Markets Stabalize as Coronavirus Concerns Recede

Rates and risk assets rebound as coronavirus cases in China stabilize. Hubei province reported the lowest number of new coronavirus cases since the start of the month, although President Xi Jinping still voiced concerns about the outbreak’s economic toll. Bloomberg estimates the virus will drag down China’s GDP by 1.5% in the first quarter, but most economists are in agreement that the economy will rebound in the second half of the year. Yesterday, rates remained mostly rangebound- the 10-year Treasury yield sitting at 1.58% while US equities rose.

Federal Reserve Chairman Jerome Powell addresses Congress in first of two days of testimony on Capital Hill. Powell is expected to cover his economic outlook and the Fed’s ongoing repo market operations in his semiannual update to Congress on the state of the economy. In his prepared remarks, Powell indicated that the Fed is content with the current state of monetary policy and that he doesn’t expect any interest rate changes unless economic conditions deteriorate significantly. Powell is also expected to address coronavirus quarantine efforts and provide commentary on the outbreak’s expected impact on the US economy.

Day ahead. ECB President Christine Lagarde spoke at the European Parliament at 9 AM this morning to address weaker international trade and lower-than-expected inflation. Shortly after, the US job openings and labor turnover survey numbers will be released for December. Openings have been trending lower, so economists estimate numbers coming in at 6.775 million versus 6.8 million in November. BOE Governor Mark Carney will address the Lords of Economic Affairs Committee. Fed Vice Chairman Randal Quarles will speak on bank supervision. St. Louis Fed President James Bullard will speak on economic and monetary policy. Minneapolis Fed President Neel Kashkari will speak on the state of the economy. The Reserve Bank of New Zealand will release any policy and rate changes this evening at 8:00 PM.