Markets Sell Off After Pandemic Declaration from World Health Organization…..

The U.S. equity markets relinquished all of yesterday’s gains after the already-high anxiety surrounding the COVID-19 outbreak was further kindled following the World Health Organization’s (WHO) declaration that the coronavirus can be characterized as a “pandemic.” As well, the turmoil in the oil markets continued surrounding the recent price war between Saudi Arabia and Russia. Optimism of a fiscal stimulus response by the U.S. that boosted stocks yesterday faded after last night’s press conference by President Donald Trump was short on details. Meanwhile, the Bank of England deployed an emergency rate cut ahead of tomorrow’s monetary policy decision from the European Central Bank, while expectations remain high that the Fed could further cut its target range for the fed funds rate after next week’s policy meeting. Treasury yields and the U.S. dollar reversed course and finished higher, while crude oil prices and gold traded lower. In economic news, mortgage applications surged as refinancing activity hit a fevered pitch, and consumer price inflation inched higher. In light equity news, PepsiCo agreed to acquire Rockstar Energy Beverages for roughly $3.9 billion, and Dow member Boeing announced that it will draw from a $13 billion loan earlier than expected. Europe and Asia also finished lower.

The Dow Jones Industrial Average tumbled 1,465 points (5.9%) to 23,553, the S&P 500 Index fell 141 points (4.9%) to 2,741 and the Nasdaq Composite declined 392 points (4.7%) to 7,952. In heavy volume, 1.7 billion shares were traded on the NYSE and 4.2 billion shares changed hands on the NASDAQ. WTI crude oil lost $1.38 to $32.98 per barrel and wholesale gasoline was down $0.05 to $1.11 per gallon. Elsewhere, the Bloomberg gold spot price shed $10.92 to $1,638.48 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.1% to 96.51.

The stock markets gave back more than yesterday’s recovery, and crude oil trimmed Tuesday’s rebound, amid the lingering uncertainty regarding the economic and earnings impact of the spreading COVID-19—coronavirus—outbreak. Meanwhile, Treasury yields and the U.S. dollar were higher. The lack of detail regarding a fiscal response from President Donald Trump late yesterday appeared to exacerbate the uncertainty. Moreover, a World Health Organization (WHO) official declared the COVID-19 outbreak can be characterized as a “pandemic”, further fueling the anxiety. As well, the oil price war intensified to amplify the uneasiness, while expectations of increased monetary policy actions among global central banks remain elevated, with the Bank of England (BoE) delivering an emergency rate cut, following last week’s unexpected 50 basis point (bp) rate cut by the Federal Reserve, which is expected to announce another cut at its scheduled meeting next week, and ahead of tomorrow’s monetary policy decision by the European Central Bank (ECB).

Mortgage applications surge as refinancing activity jumps, consumer price inflation ticks higher

The MBA Mortgage Application Index surged 55.4% last week, following the prior week’s 15.1% gain. The decisive increase came as a 78.6% jump in the Refinance Index was met with a 5.6% rise for the Purchase Index. The average 30-year mortgage rate dropped 10 bps to 3.47%.

The Consumer Price Index (CPI) ticked 0.1% higher month-over-month (m/m) in February, above the Bloomberg estimate calling for a flat reading, and compared to January’s unrevised 0.1% gain. The core rate, which strips out food and energy, was 0.2% higher m/m, in line with expectations to match January’s unadjusted increase. Y/Y, prices were 2.3% higher for the headline rate, north of forecasts calling for a 2.2% gain and compared to January’s unadjusted 2.5% increase. The core rate was up 2.4% y/y, above projections calling for it to match January’s unrevised 2.3% gain.

Treasuries finished lower, as the yield on the 2-year note increased 2 bps to 0.51%, the yield on the 10-year note was up 12 bps to 0.88%, and the 30-year bond rate was 16 bps higher at 1.37%.

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