Rates Fall as Coronavirus Cases Jump

 

Coronavirus cases in China rise sharply. Infections rose to over 63,000 with the death toll at 1,380. Chinese officials amended the criteria for diagnosing the illness, spreading global uncertainty that the outbreak has not yet reached its peak. China has pledged to work with the WHO to be more transparent in their virus reports. In response, the PBOC is adding billions of dollars in liquidity to the market as an economic stimulus. Moody’s estimates that the virus has dropped China’s GDP by 0.2% at an annualized rate in Q1. Markets continue to trade on coronavirus headlines, swap rates and Treasury yields falling by 5 basis points this morning as markets assess contrasting data coming out of China on the outbreak.

 

 

The New York Fed plans to reduce overnight repo operations in the near future. The NY Fed plans to shrink its repurchase-agreement operations in the immediate future, signaling that officials are sufficiently satisfied with the functioning of funding markets following September’s liquidity crunch. Specifically, the Fed’s term offering will begin to drop by $5B per week while the overnight offering will drop by $20B per week. The Fed’s pull back from those overnight operations is happening faster than the market had originally anticipated, though overnight rates haven’t exhibited any signs of stress in recent months.

 

 

Day ahead. US retail sales data was released this morning. Figures were in-line with expectations showing a rise of 0.3%. Industrial production data reported a drop of 0.3% in utilities output. The University of Michigan’s preliminary consumer sentiment report for February is forecasted to fall 0.3 to 99.5 from the previous month. Cleveland Fed President Loretta Lester is scheduled to speak in Florida.