The economic calendar was relatively thin and, for the financial markets, was superseded by concerns about the Wuhan coronavirus. Hundreds of millions of people travel in the extended Lunar New Year holiday. The virus is likely to have a significant negative impact on the Chinese economy and the large amount of travel may further spread the virus.

The Index of Leading Economic Indicators (LEI) fell 0.3% in December, held down partly by a quirk in jobless claims (difficulties in adjusting for the late Thanksgiving appear to have shifted some claims in December; claims have since fallen back in January). Still, beyond the quirk in claims, the underlying trend in the LEI has been lower (down in four of the last five months, -0.7% since July). The shallow rate of decline in the LEI is more consistent with sluggish near-term growth than an outright recession. At -0.23, the three-month average of the Chicago Fed National Activity Index remained consistent with below-trend growth.

Next week, the economic calendar picks up, although financial markets may still be sensitive to news of the Wuhan coronavirus. The Federal Open Market Committee is widely expected to leave short-term interest rates unchanged. Real GDP growth is expected to have risen at a moderate rate in the advance estimate for the fourth quarter. Slower inventory accumulation should subtract from growth, but a narrower trade deficit will add. It’s recommended that investors look beyond the headline figure and focus on the key components, consumer spending and business fixed investment.


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