COVID-19, FKA the coronavirus, weighed on the markets again as an early indicator of February economic activity, the Markit flash PMI, signaled a slowdown in the U.S.  U.S. Markets were closed on Monday for President’s day and stocks ended the holiday shortened week with modest losses.  While China made a small cut to interest rates, many analysts believe it was too small to counter the negative effects of covid-19 on growth.  On Wednesday China pledged support to businesses who have had supply chain disruption due to Covid-19.

At this point it is unknown how long COVID-19 will spread and how bad things will get.  Looking back on the 2003 SARS virus, the markets had a very sharp V shaped recovery and were significantly higher after six months and twelve months.  However, today China’s economy is much larger and supply chains have become more highly integrated.  COVID-19 appears to have a lower mortality rate, 2% vs 5% for SARS but also appears to spread more easily.  Time will tell how well it is contained and if there are better treatments.

The 30-year Treasury hit an all-time low this during this week of 1.887% but ended at 1.919%.    The 10-year Treasury yield fell to 1.468%.  Crude oil rose to $53.31 a barrel and natural gas rose to $1.907 MMBTUs.  The U.S. dollar rose against a basket of currencies and gold prices rose sharply to $1646.10 an ounce.

In economic numbers this week:

• Japan’s economy shrank at a 6.3% annual rate in the fourth quarter following an increase in the national sales tax from 8% to 10%.  Not only did this reduce consumption, many people loaded up on goods prior to the tax increase.  Expectations are for a weak Q1 as supply chains are interrupted due to covid-19.
• China’s central bank cut the one-year medium-term lending facility rate to 3.15% from 3.25%.  Reverse repos, an indication of money market rates, remained unchanged at 2.4%
• The National Association of Realtors reported existing-home sales fell 1.3% in January.  From a year earlier January sales were up 9.6%.  The low inventory of existing homes was cited as the reason for the decline.  The January existing home inventory was the lowest since 1999.
• While the Markit manufacturing and non-manufacturing purchasing managers indexes will come out next week for February, Markit released an early estimate composite output flash PMI for February which came in at 49.6, down from 53.3 in January.  The early flash report is based on 85 to 90% of the respondents and breaks down as follows:
  • Services fell from 53.4 in January to 49.4 in February.
  • Manufacturing fell from 51.9 in January to 50.8 in February. 
  • The slowdown was attributed to a decrease in travel hitting the services sector and supplier delays from China hitting the manufacturing sector.
• The Commerce Department reported:
  • Housing starts fell 3.6% in January following a robust end of 2019.
  • Permits for new housing and indicator of future home construction rose 9.2% to a 13 year high.
• The Labor Department Reported
  • The producer-price index rose 0.5% in January.  Excluding volatile food and energy prices also rose 0.5%  However, from a year earlier producer prices have risen only 2.1%. 
  • First time jobless claims in the prior week rose 4,000 to a seasonally adjusted 210,000.  The four week moving average of claims fell to 209,000.
• The EIA weekly oil report is attached.  Also, the EIA reported in the past week:
  • Field production of crude oil was unchanged at 13.0MM barrels per day.
  • Natural gas storage fell by 151BN cubic feet and is above the five year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 1 to 687 and the number of active gas rigs was unchanged at 110.
• Refinitive reported with 87% of S&P 500 companies reporting Q4 earnings the average earnings increase was 3.2% from a year earlier.  Excluding energy stocks, the increase was 6.1%

Please call us if you have any questions.

Best Regards,

Loren C. Rex, CFP^®, AIF^®, MA                                                 Erik A Smith AIF^®

President                                                                                      Managing Partner

Generations Financial Planning & Wealth Management   269-441-4143

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Battle Creek, MI  49017

Tel 269-441-4090

Carrie Fuce, Assistant 269-441-4091

Toll Free: 800-513-8180

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Visit our Website:  www.genfinplan.com

Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated. 

These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.