Daily Market Color February 20, 2020Investor Flight to Safety Pushes 10-Year Treasury Yields Down Risk-on rally pauses as coronavirus deaths spread beyond China. While Chinese authorities reported a declining number of new coronavirus cases, new evidence continues to emerge that the virus is spreading well beyond the Chinese province at the center of the outbreak, as two people from a cruise ship off Yokohama in Japan died from the virus, and South Korea reported its first fatality from the disease. Worries about the global spread of the virus along with lackluster corporate earnings reports triggered an investor flight to safety. The dollar strengthened, and gold jumped to a seven-year high. The S&P 500 index is down 1.1% at mid-day. Treasury yields fall to one-month lows. Ten year treasury yields declined 5 bp to a one-month low of 1.51% on safe-haven buying. In the mInutes from the FOMC’s January 28th – 29th policy meeting, released yesterday afternoon, Fed officials expressed confidence about the U.S. economic outlook and reiterated their expectation that rates would likely remain on hold for the near-term. Committee members “expected economic growth to continue at a moderate pace, supported by accommodative monetary and financial conditions,” the minutes said. Despite the Fed’s cautiously-optimistic outlook, investors continue to price in the likelihood of further Fed rate cuts later this year. Fed fund futures currently imply an 87% probability of last one 25 bp rate cut by year-end. Philadelphia Fed sees surprising strength in manufacturing. The Philadelphia Fed said its gauge of business activity in the mid-Atlantic region surged in February to its highest level in three years. The regional Fed bank’s index jumped to 36.7 in February from 17 in the prior month. Index readings above zero indicate improving factory conditions. The findings of the survey are consistent with the New York Fed’s Empire Manufacturing Survey which also found a sharp improvement in manufacturing sentiment. However, the uptick in sentiment in the the wake of the U.S.-China trade deal may be curtailed by continued supply-chain disruptions and fragile global demand due to coronavirus containment efforts. Day ahead. Initial jobless claims were released this morning, and data were in-line with forecasts at 210,000 – a slight increase from the previous week. The weekly Fed balance sheet will be published this afternoon. Richmond Fed President Thomas Barkin will speak today. The ECB will publish minutes from its January meeting which could detail any future policy revisions.