MBS Live Week Ahead: Big Week of Econ Data Tempered by Virus-Watching Trade

The total count of confirmed coronavirus cases will continue to grow for quite some time (several months, perhaps).  Markets and epidemiologists alike agree on that fact.  The greater unknown is the trajectory of that case count.  The sooner/faster it decelerates, the more upward pressure for interest rates.

The most relevant virus-related data continues to come out of China as that's where the sample size is by far the largest.  Sunday saw the biggest day-over-day jump in cases yet (2825).  In percentage terms, however, this was the slowest day so far.

While I'm no expert, I do wonder where the threshold is in terms of reporting capacity.  Perhaps every suspected patient who has sought medical help has been accurately diagnosed, but it's easier to imagine more than a few cases going undiagnosed due to capacity constraints of China's medical system.

Markets don't tend to trade too aggressively on something just because it's easier for me to imagine (the nerve!).  With that in mind, it's no great surprise to see stocks modestly stronger and bond yields modestly higher over the weekend as the pace of diagnoses slowed by 2%.  

In the week ahead, the ongoing reaction-trading of coronavirus updates will collide with the ongoing need for domestic markets to react to relevant economic data.  We saw this last Friday with a refreshingly apparent reaction to the weak Chicago PMI report.  That suggests at least some measure of willingness to react to this week's slate of heavy hitters, including this morning's ISM Manufacturing PMI.

In 10yr yield terms, 1.50% is the floor to beat for now and 1.67% is the most relevant ceiling (i.e. breaking above that would be the first important sign of a shift up and out of the coronavirus trading range).