Markets decline on growing coronavirus fears

Dow dropped 227, decliners over advancers better than 2-1 & NAZ slumped 174.  The MLP index dropped 2+ to the 196s & the REIT index went up 1+ to the 435s.  Junk bond funds slid lower & Treasuries rose in price taking the yield on the 30 year Treasury bond down to a record low..  Oil pulled back in the 53s & gold vaulted 28 to 1648 (more below).

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The Federal Reserve should be providing markets more information about what is influencing monetary policy, the head of the central bank's Cleveland district said.  Loretta Mester's remarks come at a time when the market & the Fed are out of line regarding the path of interest rates this year.  Traders widely expect 2 rate cuts this year, while Fed officials have said repeatedly that they think policy is fine where it is now.  Speaking during a Fed-sponsored event in NY, Mester said in prepared remarks that when the 2 sides are not in sync, “policymakers shouldn’t just capitulate to the market.”  They should, however, “be open to reassessing their view of the economy based on all incoming information, including the views of participants in the financial markets.”  “We have to be open to the possibility that the markets’ view may be more in alignment with fundamentals than the policymakers’ view,” she added.  Mester said the policymaking FOMC's post-meeting statement as one example.  Under current Chair Powell, the communications have gotten considerably shorter, to the point where they almost completely fit on one side of a standard sheet of paper.  The Jan statement, for instance, was just 311 words.  The last meeting under former Chair Janet Yellen, in Jan 2018, saw a 420-word statement & it was common for the documents to run over 500 words in that era.  In place of more written detail, Powell has held news conferences after each meeting, instead of quarterly as Yellen & Ben Bernanke did.  Mester called the Jan statement “pretty sparse” & said the FOMC might be able to avoid more confusion by providing greater detail.  “What I’m advocating would result in a longer statement – which may not be fashionable in the age of Twitter. But I think it would help us escape the statement’s ‘Hotel California’ problem: words check in but they don’t check out,” she added.  Longer statements might alleviate the market's practice of looking for subtle word changes to get larger clues about the Fed's intentions.  “If we used more words to explain things, each word would carry less weight,” Mester said.  “The language would be less boilerplate. This would free us to explain our rationale and change the statement’s language productively from meeting to meeting without fear of sending the wrong message.”  Mester's speech did not address specific policy views.  Several of other officials have said they do not believe a rate cut is needed at this time.

Fed’s Mester calls for changes in how rate decisions are communicated

US health officials are preparing for the COVID-19 coronavirus, which has killed over 2200 & sickened more than 76K worldwide, to become a pandemic, the Centers for Disease Control & Prevention said.  “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen,” Dr Nancy Messonnier, director of the CDC's National Center for Immunization & Respiratory Diseases, told reporters.  “Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.”  Messonnier said the CDC is working with state & local health departments “to ready our public health workforce to respond to local cases and the possibility this outbreak could become a pandemic.”  The CDC is collaborating with supply chain partners, hospitals, pharmacies & manufacturers to understand what medical supplies are needed, she added.  “This will help CDC understand when we may need to take more aggressive measures to ensure that health-care workers on the front lines have access to the supplies that they need,” she said.  “We are reviewing all of our pandemic materials and adapting them to COVID-19.”  Messonnier pointed to China, where schools & businesses have been shuttered for weeks to contain the outbreak there, saying the US may eventually need to do the same.  “The day may come where we may need to implement such measures in this country,” she continued.  The CDC is changing the way it categorizes confirmed cases in the US to separate out people who’ve been repatriated to the country with the virus from China & from a cruise ship that was quarantined off the coast of Japan, she said.  Today, the CDC had confirmed 13 infections that were transmitted on US soil & 21 cases that were brought into the country.  The US evacuated 329 Americans this week from the Diamond Princess ship, which was quarantined in the port of Yokohama, Japan, after an outbreak emerged onboard earlier this month.  Despite the quarantine, which kept passengers confined to their cabins, the virus infected more than 600 passengers & crew, including some Americans who are being treated in Japan.  “There are several Americans with COVID-19 who are hospitalized in Japan and who are seriously ill,” she added.  Of the 329 Americans brought back from Japan, 18 of them tested positive for COVID-19.  She said it's possible that some of those patients did not test positive before boarding the evacuation flights in Japan but that they were “already incubating the disease.”

CDC prepares for possibility coronavirus becomes pandemic and businesses, schools need to close

Larry Kudlow, Pres Trump's top economic advisor, said that he believes the recent decline in US bond yields doesn't reflect market fundamentals but instead a transient flight to safer assets in the wake of the coronavirus in Asia.  When asked how he interprets a new, all-time low on the 10-year Treasury bond, Kudlow said he has to think it’s “a run to safety.”  “I just think, in general, I would be very careful to put too much emphasis on what bond rates are doing, what interest rates are doing. Or even in the short, short run, the stock market,” he added.  “I think you have a lot of mood swings here and I don’t think it reflects the fundamentals.”  Kudlow's comments came as the yield on the benchmark 30-year Treasury bond fell to an all-time low under 1.9% & the Dow dropped 285, about 1%.  Though traders widely blamed the coronavirus for today's risk-off pivot, some suggested the record low on the 30-year bond represents a longer-term view that economic growth could be slowing & that the Federal Reserve may not be equipped to remedy a slowdown.  Kudlow said that the stock market’s strong gains over the last 12 months are a sign of “business and consumer confidence” & that corp conditions could remain healthy throughout 2020.  “In the three years under policies of lower tax rates, deregulation, independent energy and better trade deals to open up an export boom, we have managed a 2.5% growth rate on average,” he added.  “That is significantly better than the prior administration. It is also significantly better than what the CBO has forecasted.”  “America is working and there is a blue-collar boom,” he continued.  “This a fundamentally very sound economy.”

Larry Kudlow says falling bond yields don’t reflect the US economy’s fundamentals

Gold futures rallied, posting the biggest weekly gain in 8 months, as downbeat US economic data & steadily sliding gov bond yields offered fresh support to the haven asset that is on pace for a 7th straight session gain.  Gold for Apr added $28.30 (1.8%) to settle at $1648 an ounce.  The metal saw a weekly gain of 3.9%, which marked the sharpest weekly rally for a most-active contract since the week ended Jun 21.  The powerful rally for the precious metal, which has sparked renewed interest by market analysts, comes as the 30-year yield slipped 6.4 basis points to 1.9066%, falling below its previous all-time low of 1.95%.  Precious metals don't offer a coupon so falling yields can underpin gains for the hard commodity.  Investors have been worried that the disease could hamstring Asian economies, considered linchpins for industries like semiconductors and automobiles, & fuel a global economic slowdown.  Data released today showed that business in the US contracted in Feb for the first time in 4 years due to disruptions caused by the coronavirus & growing angst over the outcome of the 2020 presidential election.  The index covering the large service side of the economy sank 4 points to 49.4, IHS Markit said.  However, Federal Reserve members have been sanguine about the outlook for the domestic economy thus far.  St Louis Fed Pres James Bullard said that there is a “high probability” the COVID-19 outbreak will be a temporary shock, while Atlanta Fed Pres Raphael Bostic said he expected US GDP to remain healthy.  

Gold posts biggest weekly gain since June as downbeat economic data fuel haven demand

Sales of previously-owned homes fell slightly in Jan, but they still appear to be trending higher overall amid a mini-boom in the real estate business tied to tumbling mortgage rates.  Existing-home sales slipped 1.3% last month to an annual pace of 5.46M the National Association of Realtors.  That’s how many homes would be sold if the rate of sales was the same for the entire year.  Yet in a sign of how much stronger demand has gotten, sales of previously owned homes were almost 10% higher compared to the same month last year.  The only reason sales probably aren’t even stronger is a lack of homes for sale.  Sales fell more than 9% in the West, accounting for all of the decline last month.  Sales rose slightly in the South & Midwest & were flat in the Northeast.  The median sales price for existing homes in Jan registered $266K, up 6.8% from a year earlier.  Although lower mortgage rates have made it somewhat easier to buy, the lack of supply is still pushing prices higher.  The inventory of homes for sale rose a bit to 1.42M in Jan, but the supply sits just above the lowest level on record.  There was a 3.1 month supply of homes for sale last month, up a tick from a record low in Dec.  The general rule of thumb is that a 6-month supply is a sign of a balanced market.  The US housing industry has rebounded from a lull at the end of 2018 owing to a sharp decline in mortgage rates.  A stable economy, low unemployment & rising number of families with children are also helping to juice up demand.  Builders are boosting construction to take advantage of the uptrend, but prices will continue to rise unless the supply of homes increases faster or more owners put their properties up sale, neither of which seems likely.  If so, the level overall level of sales will continue to be constrained.

Existing-home sales dip in January as tight supplies limit opportunities for buyers

Stocks started the day with heavy selling & remained near that level for the rest of the session.  Growing worries about spreading coronavirus keep nagging at investors' minds.  As a result, 30 year Treasuries were bid higher which bring record low yields (for the next 30 years).  These are trying times in the stock market with the Dow under 29K.  There was a little buying into the close, keeping the Dow close to its record highs last week.  With the tumult in the stock market, buyers are flocking to gold.

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