Contagion

While there is some good news in the moderation of fatalities in China, the source of the global coronavirus outbreak, the spread of the illness continues. Switzerland reported its first death from the disease, while the number of cases in Italy and South Korea continues to climb. Restrictions to contain the illness are intensifying, with Italy announcing the closure of all schools and large gatherings of people, and schools in the worst-hit area of Seattle also shutting for 14 days. The list of corporate profit warnings continues to grow while the International Air Transport Association said the outbreak could cost airlines as much as $113 billion.

Fiscal response

The monetary response, while perhaps not as globally coordinated as advertised, saw the Bank of Canada yesterday follow the Federal Reserve with its own 50 basis-point rate cut. Perhaps more important is the arrival of a fiscal response. Governments in Asia have already pledged or are considering $38 billion in new spending to counteract the effects of the outbreak. Yesterday in Washington the House passed a $7.8 billion emergency spending bill to deal with the crisis. In Europe, there has been little beyond the promise of major fiscal measures, despite calls from French Finance Minister Bruno Le Maire for stimulus.

High stakes

Oil ministers gathering in Vienna may be close to bridging the gap between Saudi Arabia and Russia as major oil producing nations seek to deal with the recent huge drop in demand. OPEC ministers have agreed on the 1.5 million barrels a day cut in production, which may still be contingent on Russian agreement at the wider OPEC and its allies meeting tomorrow. In the market, the price of a barrel of crude quickly reversed earlier losses as investors reacted to the news.

Rally stumbles

Yesterday’s huge climb into the U.S. close is already coming under pressure. Overnight, the MSCI Asia Pacific Index climbed 1.25% and Japan’s Topix index closed 0.9% higher. It is a different story in Europe this morning where the Stoxx 600 Index was 1.2% lower by 5:50 a.m., despite opening higher. S&P 500 futures had dropped by 2%, the 10-year Treasury yield was back under 1% and gold was higher.

Coming up…

Initial jobless claims at 8:30 a.m. are expected to show a small decrease from last week’s number as investors get one last look at the employment market ahead of tomorrow’s payrolls number. Factory and durable goods orders for January are at 10:00 a.m. Dallas Fed President Rob Kaplan, New York Fed President John Williams and the Bank of Canada Governor Stephen Poloz all speak later. Costco Wholesale Corp and Kroger Co. are among the companies reporting earnings.