The Markets React to the Coronavirus

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Special Guest Blogger: Tim Kearney

Global markets have been roiled by the coronavirus and its potential impact, and that makes sense. With a two-week incubation period, it is difficult to estimate the extent of the virus’ reach at this early stage. Over the past five trading days, U.S. indexes are generally outperforming Europe, with Asia and specifically China, at the tail-end. Treasurys looks like a so-called “safe-haven,” with yields down to 1.6% and a 2% rise in the U.S. dollar. The biggest negative impact on the global economy seems to point to tourism, but also to electronics production.

Of interest is the potential impact on the Federal Reserve. At this point there is an interesting peek into the market’s view of the Fed. The market had priced a 30% likelihood of flat-to-lower rates at the July meeting, but now that likelihood has spiked to 50%. It appears that the market expects the Fed to favor maintaining the growth rate in the face of this shock, as it should be at this point.

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