Wednesday, January 29, 2020
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This is nothing like SARS
At 2:00 p.m. ET, the Federal Reserve will announce its latest interest rate decision, with markets expecting no change in its current interest rate policy. At 2:30 p.m ET, Fed Chair Jerome Powell will field questions from the media.
Yahoo Finance’s Brian Cheung notes that economists expect this to be one of the Fed’s more uneventful meetings in recent memory. Most questions will likely linger on the topic of the Fed’s balance sheet and the outlook for its involvement in repo markets.
But we also expect Powell to be asked about the coronavirus outbreak that has so far killed more than 100 people in China as the number of known cases around the world has grown to more than 4,500 as of Tuesday.
Monday’s stock market sell-off — the market’s sharpest decline since October — was largely attributed to fears over the virus’ spread and its potential impact on the global economy. This has resulted in commentary from investment strategists across Wall Street trying to make sense of how fears about a global pandemic might impact financial markets.
A common approach has been examining the SARS outbreak of the early 2000s for clues as to how markets and policymakers could asses the current landscape.
But RBC economist Tom Porcelli thinks this comparison would be “amongst the most misguided approaches.” Largely because what happened in markets and the global economy during the SARS outbreak had little to do with SARS.
“The Iraq War timeline overlaps with SARS in a significant way and makes any level of analysis questionable,” Porcelli writes. “[In] contrast to today, U.S. economic fundamentals were pretty terrible in 2002/2003 (indeed, one could make an argument the U.S. economy was on the verge of a double-dip recession at the time).”
When it comes to the Fed’s view of SARS and its role in shaping the central bank’s economic outlook, Porcelli notes that the virus only played a role in Fed discussions after the WHO declared the outbreak a global emergency. Through Tuesday afternoon, the WHO had not yet taken that step with coronavirus. And even then, the role was modest — in Fed transcripts from 2003-04, “SARS” was mentioned just 24 times across 12 meetings.
In Porcelli’s view, this makes Powell’s likely statement on coronavirus later today “predictable if past is prescient.”
“[Powell] will express the fact that the committee is on guard and monitoring the risk of slowing global growth on the back of this epidemic and whether that could spill over to the U.S. (whether that is real economic data or so-called financial conditions),” Porcelli writes.
“With the U.S. economy on very sound footing, we think it takes a severe decline in financial conditions (a function of a protracted equity market selloff) to alter the Fed’s very strong on-hold bias.”
So, while financial markets may be quick to react to recent coronavirus developments, expect the Fed to remain more measured in discussing this outbreak. As, of course, one would always expect.
What to watch today
6:50 a.m. ET: AT&T (T) is expected to report adjusted earnings of 87 cents per share on $46.99 billion in revenue
6:58 a.m. ET: McDonald’s (MCD) is expected to report adjusted earnings of $1.96 per share on $5.31 billion in revenue
7:30 a.m. ET: Boeing (BA) is expected to report adjusted earnings of $1.30 per share on $21.74 billion in revenue
4:05 p.m. ET: Facebook (FB) is expected to report adjusted earnings of $2.83 per share on $20.89 billion in revenue
4:10 p.m. ET: Microsoft (MSFT) is expected to report adjusted earnings of $1.32 per share on $35.70 billion in revenue
4:55 p.m. ET: Tesla (TSLA) is expected to report adjusted earnings of $1.74 per share on $7.05 billion in revenue
British Airways suspends China flights amid coronavirus outbreak [Yahoo Finance UK]
Boeing set to report Q4 earnings as 737 MAX mess drags on [Yahoo Finance]
YAHOO FINANCE HIGHLIGHTS