Biden, Equities, the Fed, Treasuries and the Virus: Is anything missing?

• Biden primary victory boosts equities and longer Treasury rates.
• US economic data proves hardy and better than expected.
• Federal Reserve rate cut aids stock rally.

Former Vice-President Joe Biden resurrected his presidential campaign winning ten of 14 states on Super Tuesday, US stocks soared one day after the Fed instituted it first emergency rate cut in a decade, the yield on the benchmark 10-Year Treasury clawed back from its record low, and the Coronavirus continued to play havoc with the outlook for economies around the world as the intersection of politics, finance and public health produced a rollicking day of trading.

The Democratic establishment breathed a huge sigh of relief as primary returns gave Biden a clear victory and a lead in delegates though Bernie Sanders garnered the biggest single prize, winning California by almost ten points and a majority of its 415 delegates.

With almost 80% of the day’s 1,357 delegates awarded, Biden leads in the count 566 to 501. The largest undecided bloc of 144 is in California, which if granted along existing percentages would bring Biden’s delegate lead down to about 25, with the actual disposition depending on the location of the remaining votes.

In New York the Dow rocketed ahead 1,173.45 points, its second-highest one-day advance, gaining 4.53% and closing at 27,090.86.  The average moved out of correction, defined as a 10% loss from the 52-week high, finishing off 8.3% from its February 12^th  record of 29,551.42. Last Friday the average had ended down 14% from that all-time high.

Over the last eight sessions, the Dow has averaged an astonishing 854 points from close to close. In the three trading days this week, the Dow has averaged 1,084 points. The all-time record single session move of 1,294 was set on Monday.

The S&P 500 jumped 4.22%, 126.75 points to 3,130.12 and the Nasdaq added 3.8% to 9,018.09.

Stocks were boosted by the victory of Joe Biden, a relative political centrist compared to Bernie Sanders the self-proclaimed democratic socialist, whose plans to remake the US economy and institute government-run health care are viewed as anathema on Wall Street.  Health care stocks were big winners on the day.

The Federal Reserve’s emergency 0.5% rate cut yesterday likely played a part as well. Though equities sold off on Tuesday after an aborted rally, there had been much speculation before the vote that Sanders might end the day with a lead in the delegate count.

Equities were aided by US economic data.  The purchasing managers’ index for the service sector in February from the Institute for Supply Management came in at 57.3 much stronger than the 54.9 forecast and January’s 55.5 reading.  The new orders index vaulted to 63.1, its best score since June 2018, far outstripping the 56.3 prediction and the January read at 56.2.  The employment index climbed to 55.6, its highest since last July, from 53.1. It had been predicted to rise to 54.1.

Services PMI

FXStreet

The private payroll company ADP reported that its clients had added 183,000 workers in February, more than the 170,000 projection, though the January result was revised down to 209,000 from 291,000.

The economic impact of the Coronavirus in China and around the globe has been the main factor driving markets for the past two weeks. China’s factory closures and quarantines have not, as yet, had a dramatic impact on the US economy.  Manufacturing PMI for February, where the greatest effect would be anticipated was released on Monday. It was weaker than expected at 50.1 but it did not dip back into contraction, employment was better than forecast at 46.9 and while new orders dropped back to 49.8 in February from 52, the fear comparison for both PMI gauges was the Chinese examples which plunged to record lows of 29.6 in services and 35.7 in manufacturing in February.

Although the Fed is not expected to cut rates at the March 17-18 meeting its ‘Beige Book’ showed that the US economy expanded at a “modest to moderate” rate over the interim since the last scheduled FOMC on January 28-29.

Treasury rates rebounded slightly with the benchmark 10-year closing at 1.03% after dropping below 1% yesterday for the first time in history.The 2-year finished at 0.67% following a 0.62% low on Tuesday. 

The dollar benefited from the moderation in Treasury rates gaining about 40 points to 1.1138 against the euro and about 25 points versus the yen to  107.50.