Fed cuts rates. In a surprise move, the Federal Reserve (Fed) cut its policy rate by 0.50% on Tuesday, its first emergency cut since October 2008. With two cuts already fully priced in by markets for the next meeting, the surprise move was likely calibrated to increase the cut’s impact. We believe the Fed is acting out of appropriate caution to help the economy through what is sure to be an economic soft patch before a potential rebound in the second half of the year, with more room to ease if needed.
Markets settle down as central banks, governments ramp up support. Central banks and governments are increasingly committing to bridge any economic slowdown from the coronavirus, and markets have been responding. Australia and Malaysia have cut policy rates, the G-7 nations released a statement about potential coordinated action, and markets are pricing in rate cuts from the European Central Bank (ECB) and Federal Reserve. Volatility may persist on uncertainty about the economic impact of the virus, but policymakers can help bridge the soft patch with economic growth later accelerating due to pent-up demand.
U.S. manufacturing shows resilience but coronavirus impact weighs. U.S. manufacturing continued to expand in February, according to the Institute for Supply Managements’ (ISM) Purchasing Managers’ Index (PMI) for manufacturing, although the gains were marginal. The ISM manufacturing PMI came in at 50.1, a decline from 50.9 in January (above 50 indicates expansion). Supplier delivery delays due to supply chain disruptions had an artificial impact on keeping the headline reading elevated, showing that despite resilience U.S. manufacturing is also seeing the impact from the coronavirus. For further analysis, see today’s LPL Research Blog.
Super Tuesday has arrived. 14 states and one territory hold primaries today, including California and Texas, making it the single biggest day on the primary calendar. With Pete Buttigieg and Amy Klobuchar dropping out, the field has narrowed. Today’s results are not likely to provide much clarity.
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