Manufacturing data to provide telling insights into the impact of the coronavirus
David Joy – Chief Market Strategist, Ameriprise Financial
Weekly markets commentary — Feb. 18, 2019
Abiding faith in the transitory nature and the economic impact of the coronavirus continues to push global equity averages higher. The MSCI All Country World Index climbed 1.1 percent last week, bringing its year-to-date gain to 2.3 percent, but more tellingly, it has risen 3.8 percent in the first two weeks of February despite the continued spread of the virus. The S&P 500® index climbed 1.6 percent last week, bringing its year-to-date gain to 4.6 percent, with 4.8 percent of that coming in February. It has been a similar story in Europe, despite abysmal fourth quarter economic data, especially industrial production and overall GDP. Even in China, the Shenzhen Composite index is higher by 14.1 percent since reopening on February 4 following the Lunar New Year holiday, while the Shanghai Composite is higher by 8.6 percent. Crude oil also rose last week, along with copper. Bond yields, in contrast, were unimpressed, as the yield on the ten-year Treasury was unchanged at 1.58 percent.
And while U.S. markets were closed this Monday for Washington’s Birthday holiday, global exchanges were once again generally positive, helped by newly announced stimulus measures in China. There were a few notable exceptions, however, including Japan, which reported a 6.3 percent fourth quarter contraction in GDP, in large measure due to a consumption tax hike.
Investors waiting on data to determine the extent of the economic damage caused by the virus
There are now a total of 72,000 confirmed cases of infection from the coronavirus and 1,868 deaths. By comparison, two weeks ago, as China tentatively began to get back to work following the Lunar New Year holiday, the number of confirmed cases was 17,000 and 361 deaths. However, China reported that the number of new cases fell below 2,000 overnight for the first time since January, offering some hope that the number of infections is peaking.
The extent of the economic damage caused by the virus remains unclear. According to Bloomberg, consensus estimates for first quarter Chinese GDP averages 4.0 percent, although estimates range between 1.4-6.0 percent. If 4.0 is the ultimate result, it would be the slowest growth rate in 30 years. G-20 finance ministers and central bank governors will meet this weekend in Riyadh, at which International Monetary Fund managing Director Georgieva has indicated she hopes to have more data to share regarding the economic impact of the virus, especially on manufacturing, but stressed the uncertain nature of the situation, along with her desire for a coordinated G20 fiscal and monetary response, to insulate the global economy from “a more serious shock.”
Manufacturing data to show insight into the virus’s global economic impact
This Friday will see the release of Markit’s flash manufacturing and service PMI indices, which should provide some telling insight into the virus’s impact on the U.S., Japan, UK and Eurozone, especially Germany. The Markit methodology is designed to provide insight from the middle of the month, so Friday’s release will cover activity from mid-January through mid-February, a period of time mostly impacted by the virus.
The ISM U.S. manufacturing and service reports are designed to capture activity for a full month, although survey response dates vary. The next reports from the ISM for February, a month most assuredly impacted in its entirety by the virus, are scheduled for release on March 2 and March 4. The JP Morgan February Global Manufacturing PMI report, also designed to capture activity for the full month, is scheduled for release on March 2.