Coronavirus fears unlikely to turn the Fed into doves

The view from TD is that forecasting the extent of coronavirus contagion to the global economy or ‘risk’ is difficult.

  • “we don’t expect the Fed to go more dovish simply because the market has become more nervous”
  • yield on the 10 yr is significantly lower since the start of the year
  •  “We don’t think the Fed is going to be a catalyst for a continued move lower in Treasury yields” 
However, the Fed will keep an eye on developments re the virus, on market sentiment and potential cascade for risk-off.
They’ll also keep an eye on what this guy wants, right?
The view from TD is that forecasting the extent of coronavirus contagion to the global economy or 'risk' is difficult.

German government reportedly sees 2020 GDP growth at 1.1%

Reuters reports, citing unnamed sources on the matter

That is a mild revision higher from their previous estimate of 1.0% growth. Overall, it’s still early days and expect the figure to possibly be revised many more times before the year is up. The next official estimate is planned to be released this Wednesday.

UK virus researchers estimate 250,000 people in Wuhan will have coronavirus in 13 days

It will spread to nearby cities and countries next

It will spread to nearby cities and countries next
A UK expert on the transmission and evolutionary dynamics of infectious diseases has published a paper with four colleagues that estimates transmission parameters for the Wuhan coronavirus and it’s terrifying.
Dr Jonathan Read estimates that only 5.1% of infections in Wuhan are identified and that an explosion in the number of cases is less than two weeks away.
By February 4, he writes that “our model predicts the number of infected people in Wuhan to be greater than 250,000 (prediction interval, 164,602 to 351,396).”
Based on travel patterns, his team predicts the cities with the largest outbreaks elsewhere in China to be Shanghai, Beijing, Guangzhou, Chongqing and Chengdu. The countries with the greatest risk of importing it are Thailand, Japan, Taiwan, Hong Kong, and South Korea.

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Eurozone January flash manufacturing PMI 47.8 vs 46.8 expected

Latest data released by Markit – 24 January 2020

  • Prior 46.3
  • Services PMI 52.2 vs 52.8 expected
  • Prior 52.8
  • Composite PMI 50.9 vs 51.2 expected
  • Prior 50.9
Despite some green shoots observed in the manufacturing sector – as exemplified by Germany earlier – overall economic conditions remain tepid in the euro area. The services sector showed a decline and the composite reading stayed flat compared to December.
The fact that manufacturing conditions continue to sit in contraction territory isn’t too helpful as well. In short, while there are some suggestions of things getting better, it still isn’t enough to point towards a more solid recovery for the time being.
EUR/USD is still keeping weaker around 1.1045 currently, failing to take heart in the more upbeat German readings earlier.

From the BOJ’s quarterly report – risks are skewed toward downside for economy, prices

More now, this from the quarterly outlook report:
  • Japan’s economy to continue expanding moderately as a trend
  • Japan’s economy likely to face impact of global slowdown for time being, though effect on domestic demand to be limited
  • inflation to gradually accelerate toward 2%
  • risks are skewed toward downside for economy, prices
  • Japan’s economy sustaining momentum for hitting 2% inflation, but momentum lacking strength
  • Japan’s economy expanding moderately as a trend, though overseas slowdown, natural disasters affecting exports, output, business sentiment
  • Consumer inflation hovering around 0.5%
  • Inflation expectations are moving sideways
  • downside risks regarding overseas economies remain high
  • no sign so far of excessively bullish expectations in asset markets, financial institutions’ activities
  • prolonged downward pressure on financial institutions’ profits from low rates could destabilise financial system
  • risk of financial system destabilising not big for now as financial institutions have sufficient capital bases

Quick Headlines via Reuters

BOJ raises its GDP forecasts but lowers its CPI forecasts

From today’s Bank of Japan policy meeting outcome:

  • median core CPI forecast for fiscal 2019/20 at +0.6% vs +0.7% projected previously
  • median core CPI forecast for fiscal 2020/21 at +1.0% vs +1.1% projected previously
  • median core CPI forecast for fiscal 2021/22 at +1.4% vs +1.5% projected previously


  • median real GDP forecast for fiscal 2019/20 at 0.8% vs +0.6% previously projected
  • median real GDP forecast for fiscal 2020/21 at 0.8% vs +0.7% previously projected
  • for 2021/22 GDP forecast is +1.1% (vs. +1.0% previously)
The thing to keep in mind is that while they are a little more optimistic on growth the CPI is still well below target … thus policy will be loose for some time to come.

BOJ announce no change to monetary policy settings, as expected

Bank of Japan monetary policy meeting for January 2020 has concluded

As expected, policy unchanged:
  • keeps monetary policy steady
  • maintains short-term interest rate target at -0.1%
  • maintains 10-year JGB yield target around 0%
  • maintains forward guidance on interest rates, says they will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost
I’ll have more on this separately