The U.S. stock market continues to fall over fears of the coronavirus and its impact on the global economy. Interest rates were highly volatile over the course of the week but ended up little changed as the 10-year treasury yield only fell two percentage points and currently sits at 0.92%. Meanwhile the spread between the 10-year treasury yield and the 2-year treasury yield continues to widen and currently sits at 0.55% as the federal reserve rate cuts forced shorter-term rates substantially lower. The price of gold fell 2.7% to $1,490 an ounce as stronger demand for the U.S. dollar has weighed on the safe-haven metal. The price of crude oil continues to tumble, dropping 40% this week and 52% over the past two weeks, as a price war with OPEC and other oil dependent countries drives the price lower.
This Week's Economic Highlights
U.S. retail sales fell by 0.5% in February, as retailers begin to temporarily close shop or reduce hours to combat the spread of the coronavirus. Sales at gas stations suffered a near 3% drop as a result of the significant drop in oil prices. Bars and restaurant sales also dropped 0.5% as some states mandate that they either close or only serve takeout orders. Meanwhile, internet retailers reported a solid increase in sales and grocery stores were basically flat.
Industrial production shows some strength after falling by 0.5% in January as it rises by 0.6% in February’s report. The report also showed a strong gain in hours worked by factory production workers; however, production capacity utilization only rose from 76.6% to 77%, reflecting they may be near their limits.
Construction of new homes dropped by 1.5% in February to a seasonally-adjusted annual pace of 1.60 million homes. Meanwhile, housing permits (a forward indication of the construction of new homes) fell by 5.5% to a seasonally-adjusted annual pace of 1.46 million. Home-builder activity has been ramped up in recent history with falling mortgage-rates, but with coronavirus outbreak forcing people to shelter at home further declines may persist.
The federal reserve was scheduled to have their federal funds announcement this week, but with two unscheduled rate cuts that brought the Feds funds rate to virtually 0%, they decided to cancel this month’s meeting. In addition to the rate cuts, the federal reserve has also decided to aggressively increase their bond holdings (adding capital to the market), and reducing bank reserve requirement ratios to 0%.
Initial unemployment claims surged by 70,000 to 281,000 for the week ending March 14th, as the coronavirus shutdown triggered the first wave of layoffs. The amount of people currently collecting unemployment sits near 1.7 million, as compared to the 6.6 million claims at the peak of the 2008-2009 recession.
“When companies with outstanding businesses and comfortable positions find their shares far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.”
– Warren Buffet
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