Daily Market Color

Haven Assets Continue to Rise as Coronavirus Spreads


Concerns around Wuhan coronavirus intensify as death toll reaches 81, and 2,744 are infected. Officials are bracing for a significant impact to China’s economy in the first quarter as the outbreak weighs on consumption, manufacturing and travel. The virus has also spread to the US, South Korea, Taiwan, Thailand and Canada- but most new cases remain contained to China. If the 2002-2003 SARS outbreak serves as a guide, the ultimate impact of the virus should be modest, but there’s little doubt that the coronavirus will dominate market sentiment in the immediate-term. Haven assets rose dramatically as a result, the 10-year Treasury yield already 6 basis points lower this morning to 1.624%- down nearly 35 basis points since the start of the year.



Bank earnings show NIMs are beginning to stabilize while deposit re-pricing is accelerating. Bank’s NIM forecasts have finally stabilized after months of decline to around 3% (around 25 basis points lower than the peak in early 2019). Most management teams expect margins to remain steady in 2020, but that relies upon a steady Fed (though Fed Futures are currently pricing in a rate cut by November 2020). This week will bring another spate of bank earnings- 53 different regional and community banks reporting fourth quarter results.



Day ahead. This morning, data on new home sales will be released. The report has shown strong numbers recently and are currently showing . Investors predict a 9,000 increase from November’s rate of 719,000. The Dallas Fed will release their manufacturing survey numbers. The January FOMC meeting also begins tomorrow, though Fed Funds futures imply virtually no likelihood of a change to the Fed’s benchmark rates.


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