Daily Brief

Daily Brief

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Economic contagion

Closer to home

It was more of the same for financial markets on Monday as investors became more fretful about the spread of coronavirus and its possible economic impact. America’s S&P equity index fell 3.5% and government bond yields were lower too, as the flight to safety took the return on 10-year US treasuries close to a record low.

The appearance of coronavirus in Italy has made European and US investors realise that the threat is not confined to China and its neighbours. South Korea is on the other side of the world: Milan is uncomfortably close to home. And it is debatable whether it would be as easy to quarantine, for example, Milan as it was to shut down Wuhan.

Though the media would surely disagree, it is pointless to speculate how the coronavirus episode will pan out. What is increasingly clear, though, is that there are economic ramifications whatever the outcome. It is no longer controversial to argue that strangled demand and obstructed supply chains will be a severe constraint on the global economy for at least the first three months of 2020. Growth in Germany was stagnant in Q419 and shrinkage in Q120 is easy enough to imagine.

 

Consolation from the numbers

It was not all bad news on Monday. Almost all of the – admittedly few – economic statistics came in better than expected, higher on the month or both.

Recession or not, “sentiment among German managers has improved somewhat” and “the ifo Business Climate Index rose from 96.0 points (seasonally adjusted) in January to 96.1 points in February”. In the same report the current assessment was above forecast at 98.9 and expectation were half a point higher at 93.4.

In North America the Chicago Fed’s national activity index improved from -0.51 to -0.25 and the Dallas Fed’s manufacturing index was a point and a half higher at 1.2. Canadian wholesale sales rose 0.9% in December after two consecutive monthly declines. Japan’s corporate service price index rose 2.3% in the year to January.

 

Speeches

Today’s agenda is no more action-packed than Monday’s. The only UK statistic is the CBI’s Distributive Trade Survey, an assessment of retail sales in February.

Other than German GDP the only European ecostat this morning was the INSEE’s monthly business survey. It described the business climate as “stable above its average”. After lunch there are two measures of US house prices, the Richmond Fed’s manufacturing index and the Conference Board’s barometer of US consumer confidence.

This evening Timothy Lane, deputy governor of the Bank of Canada, and Richard Clarida, vice chairman of the Federal Reserve, have speaking engagements. At midnight, the British Retail Consortium publishes its shop price index and Australia reports on construction output in the fourth quarter.

JPY: Safe-haven status re-established

JPY: Safe-haven status re-established

CAD: Held back by oil prices

CAD: Held back by oil prices

EUR: German sentiment improves

EUR: German sentiment improves

USD: Consumer confidence today

USD: Consumer confidence today

GBP: Steady against the USD

GBP: Steady against the USD

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