Stimulus Hopes Spark a Rebound……

U.S. equities rebounded strongly today after suffering very heavy losses last week. The rally was likely due to rising expectations that the Fed may respond with monetary policy action in conjunction with other major central banks. The Bank of Japan and European Central Bank have suggested they stand ready to act, while Italy has already announced stimulus measures. However, volatility remains high and uncertainty persists regarding the impact of the outbreak. The death toll in the U.S. has reached five, all in Washington State and the virus has infected nearly 90,000 worldwide, making its way to every continent except for Antarctica. Amid the uncertainty and the prospect for stimulus, Treasuries started the day by setting new record low yields on the longer end of the curve, but a late selloff took back some of the gains. The U.S. dollar was lower and gold was higher. Crude oil prices, which fell dramatically last week, were able to rebound a bit today. Equity news was fairly light, but Gilead Sciences agreed to acquire cancer therapy specialist Forty Seven in a transaction valued at $4.9 billion. Europe finished mixed, while Asian markets were higher.

The Dow Jones Industrial Average rose 1,294 points (5.1%) to 26,703, the S&P 500 added 136 points (4.6%) to 3,091 and the NASDAQ added 385 points (4.5%) to 8,952. In heavy volume, 1.7 billion shares were traded on the NYSE and 4.2 billion shares changed hands on the NASDAQ. WTI oil added $1.99 to $46.75 per barrel and wholesale gasoline rose $0.06 to $1.54 per gallon. Elsewhere, the Bloomberg gold spot price rose $28.10 to $1,594.80 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.5% to 97.62.

The global stock markets remained volatile to begin the week, with the spreading of the coronavirus continuing to boost uncertainty and weigh heavily on travel-related issues such as airlines, cruiselines, and hotel stocks. The markets fell broadly last week, with the S&P 500 Index last week registering the worst week since the financial crisis, as virus cases spiked in Italy, South Korea and Iran, while over the weekend two deaths were reported in the U.S. to exacerbate the uneasiness.

he February Institute for Supply Management (ISM) Manufacturing Index declined to 50.1 from January’s unrevised 50.9 level, south of the Bloomberg forecast of a dip to 50.5. The index remained in expansion territory (a reading above 50), as a decrease into contraction territory for new orders and a deceleration in the expansion of production was met with a slight uptick in employment—though remaining in contraction—a solid acceleration in growth for supplier deliveries and a return to expansion for backlog of orders. The ISM said comments from the survey were generally positive, but sentiment was cautious compared to January.

The final Markit U.S. Manufacturing PMI Index was revised slightly lower to 50.7 for February, versus expectations to be unchanged at the preliminary estimate of 50.8, and below January’s 51.9 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently, while it surveys a wider range of companies.

Construction spending jumped 1.8% month-over-month (m/m) in January, versus projections of a 0.6% increase, and following December’s upwardly-revised 0.2% increase. Residential spending rose 2.0% m/m and non-residential spending grew 1.6%.

Treasuries were mostly higher, with the yield on the 2-year note falling 5 basis points (bps) to 0.87%, the yield on the 10-year note falling two bps to 1.14%, and the 30-year bond rate increasing 2 bps to 1.70%. Intra-day, bond yields had fallen to record lows as the coronavirus concerns have fostered a decisive flight to safety.

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