US stocks rebounded ahead of the Super Tuesday election which will hand out delegates to the democratic primary candidate who will face President Trump in the fall. The win in South Carolina by Vice President Biden provided some hope for moderate democrats that they could defeat Bernie Sanders, the current front runner.
The coronavirus continues to weigh on stock market sentiment and future economic growth which will start to show up in the March numbers. Chinese PMI data for February was much worse than expected at all-time lows.
In the US, the 10-year yield hit an all-time low of 1.03%, which has weighed on the US dollar. For months, capital flows into the US buoyed both bonds and stocks, but the bid in US riskier assets has finally reversed.
The markets are now pricing in a 100% chance that the Federal Reserve will reduce interest rates at the March meeting. This is one of 3-rate cuts the markets see occurring throughout 2020.
Political Issues Perpetuate
In the UK, Brexit news and the beginnings of negotiations with the European Union are grabbing the headlines. Chief negotiator David Frost is one of more than 100 British officials, who have arrived in Brussels to begin talks with their European Union counterparts. Mr. Frost told his teams that while talks should be friendly, they should also be robust in protecting British sovereignty.
There remains a great divide that could collapse talks, but this is likely showboating as both sides begin to negotiate. It appears that UK Prime Minister Boris Johnson looking for a comprehensive Canada-style deal but this has been rejected by the EU saying that the proximity to the EU continent would not make that type of agreement suitable.
Additionally, the European Union wants the UK to negotiate using the standards even after its single market, which has been rejected by the Prime Minister. Lastly, officials are concerned that the PM might recant his commitments to avoiding a hard border in Ireland.
In the US, the focus is on the spread of the coronavirus and the potential missteps the Trump administration made as it started to address this issue. The goal now is containment and providing a mechanism to test patients.
There was no ramp up to handle coronavirus while it was in China, and now the US finds itself without the facilities and tests needed to see who has been exposed to the disease. The virus is spreading in the US. There are now more than 100 confirmed cases in 15 states and six deaths linked to the virus. While officials are attempting to ramp up the number of test kits, it does not mean that officials have a way to quickly ramp up the lab facilities to run the tests.
Yields Have Tumbled
A change at the top of the ticket in the US will be settled in the fall. The democrats have tried to impeach Trump, but they were unsuccessful, so their next opportunity will be at the ballot box. Ahead of the election, the Democrats need to pick a candidate and the primary season is headed into full bloom.
The markets reacted negatively as Bernie Sanders started pulling away from the pack, as the idea of having a socialist as a president of the United States, weighed on riskier assets. With the market's pricing in 3-rate cuts in the US in 2020, the 10-year US yield fell to an all-time low of 1.03%. This is even lower than the height of the great recession in 2009. Still of Sanders comes out as the clear nominee for the democratic party, the markets will likely experience additional headwinds.