Moneybeat - Markets catch coronavirus blues

MEGAN BASHAM, HOST: Coming up next on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: A topsy-turvy and holiday-shortened week on Wall Street featured a few new record highs midweek, and then what followed was a two-day plunge that left all the major indexes down for the week from 1.4 to 1.6 percent.

It didn’t help that two big companies issued warnings about the economic effects of the coronavirus outbreak—very specifically, they warned about their ability to generate profits. Apple was first to say last week it wouldn’t meet its iPhone sales numbers, then Procter & Gamble said the disruption would have a material impact on sales and earnings. 

Lots of global corporations have China in their supply chains, and there’s no end in sight to the outbreak and no easy way to work around it.

BASHAM: We have another week to go in February, but a preliminary dataset suggests business activity may slow down this month. If that bears out, then it’ll be for the first time since 2013 that business contracted instead of grew. A London-based business information company IHS Markit raised the alarm on Friday. It reported that an economic indicator measuring manufacturing and services-business activity dropped to the lowest level seen in six years. 

And a government report on inflation came out unexpectedly high. The Labor Department’s Producer Price Index jumped half a percentage point in January to its highest level since October of 2018. Year-on-year, that index is just above 2 percent. That’s significant, because it matches what the Federal Reserve regards as manageable inflation. Much beyond that point, and you start hearing about higher interest rates.

EICHER: Speaking of that, Wall Street seems to have its collective heart set on lower interest rates from the Fed. We talked about the coronavirus uncertainty that’s spooking traders, and now the markets are sending signals they expect the Fed to ride to the rescue with a rate cut. 

The current Fed stance is to change nothing. 

Fed policymakers, though, are listening and debating whether to do something. At a monetary conference in New York on Friday, two leading Fed policymakers took opposite positions. The head of the Cleveland Federal Reserve bank said, her words, we have to “be open to the possibility that the markets’ view may be more in alignment with [economic] fundamentals than the policymakers’ view.” That prompted a response from the vice chair of the policymaking committee that the markets are sending mixed signals: in other words, there’s as much good news on the economy as news to be concerned about.

Speaking to financial journalists on CNBC, the president of the Atlanta Federal Reserve Bank Raphael Bostic poured cold water on the idea that the coronavirus is going to blow up the global economy and start destroying jobs.

BOSTIC: … it’s going to be a short-run disruption … . But they’re not expecting they’re going to lay off folks. They’re not expecting there will be an extended negative impact. So, I think this is going to be a short-time hit, we’ll get the economy back to its usual level about 2 to 2.25 percent sometime into the future.

Two to two-and-a-quarter percent economic growth is what he means. And that is today’s Monday Moneybeat.

(AP Photo/Richard Drew) Trader Gregory Rowe, center, works on the floor of the New York Stock Exchange, Tuesday, Feb. 18, 2020. 

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