Newsletter: What’s Next With the Coronavirus?


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Tracking, Preparing
Federal health authorities said Tuesday they now expect a wider spread of the coronavirus in the U.S. and are preparing for a potential pandemic, though they remain unsure about how severe the health threat could be. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases at the Centers for Disease Control and Prevention, called for businesses, schools and communities to brace themselves and plan for potential outbreaks, Brianna Abbott and Stephanie Armour report.
Fallout: The Dow Jones Industrial Average fell nearly 900 points on Tuesday to end at its lowest level since October, the yield on the U.S. 10-year Treasury settled at an all-time low and U.S. oil futures fell below $50 a barrel. More details below.

European Central Bank President Christine Lagarde speaks in Wiesbaden, Germany, at 8:30 a.m. ET.
U.S. new-home sales for January are expected to rise to an annual pace of 711,000 from 694,000 a month earlier. (10 a.m. ET)
Federal Reserve speakers: Dallas’s Robert Kaplan is in Austin, Texas, at 9:35 a.m. ET, and Minneapolis’s Neel Kashkari is in Minneapolis at 1 p.m. ET.
Risk Aversion
The yield on the benchmark 10-year U.S. Treasury note fell to an all-time low Tuesday as stocks swooned for a second straight day, driven by worries the coronavirus could seriously disrupt an already sluggish global economy. The fall in yields marked the latest milestone in a decadeslong bond rally driven by persistently low inflation. After hovering between 1.5% and 2% for months, the 10-year yield was pushed sharply lower by reports the coronavirus was spreading outside China. Treasury yields are a key economic gauge, typically rising when growth and inflation are accelerating and sliding when the economy is losing steam. They also help determine borrowing costs for consumers, businesses, and state and local governments, Sam Goldfarb reports.

The Dow Jones Industrial Average on Tuesday fell 3.1% to end at its lowest level since October. Other major U.S. indexes shed similar amounts, while U.S. crude-oil prices tumbled below $50 a barrel. Global equities, U.S. stock futures and oil sank Wednesday morning.

The confluence of a potential pandemic with today’s complicated and interconnected world is unique. Globalization has magnified local disruptions, government stimulus is already at once-unthinkable levels and, both ominously and hopefully, technology is far more advanced than during the last truly global pandemic. There realistically are now two broad scenarios. One is that the virus is contained through herculean efforts by health workers in China, South Korea, Japan, Italy, Iran and wherever else it crops up. That will mean rolling disruptions for months. The scarier scenario is that all that occurs and the virus spreads globally anyway. The upshot of either coronavirus scenario, and especially the latter, may be far steeper market drops and at least local recessions, Spencer Jakab, Stephen Wilmot and Justin Lahart write.

Keep Calm, Carry On
The head of the International Monetary Fund cautioned countries against overreacting to the coronavirus threat and urged governments to take “well-targeted and proportionate measures” to avoid hurting their economies. IMF Managing Director Kristalina Georgieva said the fund, which is the global lender of last resort, was downgrading global-growth projections because of the virus and trying to establish whether the economic impact would come primarily in the first quarter, Bojan Pancevski reports.
Hong Kong’s government said it would dole out $15.4 billion in cash payouts and other stimulus in an attempt to resuscitate an economy reeling from the coronavirus epidemic and months of antigovernment protests. The city will give each of its adult permanent residents 10,000 Hong Kong dollars ($1,284) in cash—a $9 billion combined payout—and slash salaries tax for close to two million workers, Financial Secretary Paul Chan said Wednesday. He also announced tax breaks and financial aid for companies, Clarence Leong and Joyu Wang report.
Federal Reserve officials are keeping calm. Disruptions from the outbreak in China “could spill over to the rest of the global economy,” Vice Chairman Richard Clarida said in a speech Tuesday. “But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.” Dallas Fed President Robert Kaplan echoed those sentiments: “We are a number of weeks away from being able to make the judgment” about whether a rate change is needed. Among the challenges facing the Fed: With its benchmark rate between 1.5% and 1.75%, the central bank has less room to stimulate growth by cutting, Nick Timiraos reports.

B.C. (Before Coronavirus)
What was going on in the economy before coronavirus fears gripped markets? U.S. consumer confidence rose to a six-month high in February, suggesting that a strong underlying economy more than outweighed any concerns about the outbreak—at least through the first weeks of the month. In one upbeat sign, consumers appear to have an appetite for big-ticket purchases. The Conference Board’s monthly survey showed a record share of Americans plan to purchase a new car or a newly built home within the next six months. Plans to buy a major appliance were the second-highest on record.

One note of caution: The survey’s labor-market differential—the share of Americans saying jobs are plentiful minus the share reporting jobs are hard to get—posted its biggest drop since the recession. Other labor market data have also flashed gentle warnings, including a hefty decline in the number of job openings and a deterioration in average weekly hours. Even so, the differential remains historically elevated.

The pace of home price growth sped up at the end of 2019. The housing market has received a boost over the last year in the form of historically low mortgage interest rates. That, combined with historically low inventory of homes for sale, is contributing to the rise in prices and has made the homebuying process more competitive in many parts of the country, Will Parker reports.

The global picture was a little shakier. World trade volumes last year fell for the first time in a decade, highlighting slowing growth in Europe, Asia and parts of the Americas, as well as the effects of President Trump’s trade fights. There had been expectations for a slight rebound in 2020 though the outlook is a bit murkier now.

China, meanwhile, has taken the first steps toward implementing a partial trade deal between the world’s two largest economies. U.S. officials on Tuesday said Chinese leaders lifted import restrictions on U.S. poultry and poultry products and pet food, along with other actions. Those provisions were part of a 90-page written agreement signed in January. The deal calls for China to increase its purchases of U.S. agricultural products by $32 billion over a two-year period, though there are concerns the coronavirus could affect the pace of China’s purchases, Katy Stech Ferek reports.
Shifting Symmetry
Fed Vice Chairman Richard Clarida made a subtle but important shift Tuesday when he defined the central bank’s 2% inflation target in a way that suggests the bank is abandoning its policy of ignoring past misses. In other words, bygones will no longer be bygones. At issue is the definition of “symmetric.” For years, the central bank has said it doesn’t regard 2% as a ceiling and that it expects inflation to run above and below the target, a form of symmetry. In the years after officials adopted their 2% inflation goal in 2012, that meant they would be as uncomfortable with inflation running a little below 2% as they would be with inflation a little above 2%—and would work as hard either way to get it back to the goal. Mr. Clarida offered a different definition on Tuesday. “Symmetry means you’ve got to spend some time above and some time” below 2%, he said during a question-and-answer session at an economics conference. “If you’re always down below 2%, that’s not a symmetric goal.” —Nick Timiraos

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