Fed Makes Emergency Rate Cut as Markets Tremble Over Coronavirus

YOUR BEST NEWS ! The central bank cut interest rates by half a percentage point, its biggest single cut in more than a decade, as a pre-emptive move to protect the economy from the coronavirus.

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Newsletter: Investors Await Fresh Round of Rate Cuts

YOUR BEST NEWS!

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Global stocks regained more ground Tuesday morning as investors weighed the likely impact of interest-rate cuts in response to the impact of the coronavirus epidemic. Jeff Sparshott here with the latest.

It’s So Easy

Yields on U.S. government bonds fell to fresh lows, reflecting bets that central banks will act to battle the economic effects of the coronavirus epidemic. Yields, which fall when bond prices rise, also declined across Europe after Japanese and U.K. central banks followed Federal Reserve Chairman Jerome Powell in attempting to reassure markets, Paul J. Davies and Sam Goldfarb report.

Futures markets show that investors are betting the Fed will cut rates by 0.5 percentage point in two weeks’ time, according to data from CME Group. That would take interest rates to a 1%-1.25% range. One week ago, the market was pricing little chance of such a cut, illustrating the stark change in investors’ views about the threat from the novel coronavirus.

The Reserve Bank of Australia was the first developed-market central bank to respond to the coronavirus. The RBA reduced interest rates by a quarter percentage point to a record-low 0.50%. The challenge for central bankers is that they are running low on firepower after stimulus unleashed in recent years sought to protect economies from trade wars, geopolitical tensions and the impact of low inflation, James Glynn reports.

WHAT TO WATCH TODAY

Finance ministers for the Group of Seven advanced economies plan to hold a conference call this morning to discuss their response to the coronavirus.

Treasury Secretary Steven Mnuchin appears before the House Ways and Means Committee to discuss the White House’s fiscal 2021 budget proposal at 9 a.m. ET.

Cleveland Fed President Loretta Mester speaks on the economy and monetary policy in London at 2:50 p.m. ET, and Chicago Fed President Charles Evans speaks on the economy and monetary policy in Champaign, Ill., at 6:30 p.m. ET.

The White House coronavirus task force holds a press briefing at 5:30 p.m. ET.

The Caixin China index for the service sector is out at 8:45 p.m. ET.

It’s Super Tuesday. Fourteen states, a U.S. territory and Democrats scattered around the world head to the polls to select a nominee from the Democratic party. Follow our coverage at WSJ.com, which is free with unlimited access from March 3-5.

TOP STORIES

First Responders

The novel coronavirus is now spreading faster outside China than within. The state of Georgia reported its first two patients, pushing the number of infected people in the U.S. to 105. The number of confirmed cases outside of mainland China crossed 10,000.

European governments are divided in their response to the coronavirus, which has rapidly hopped across borders on the densely populated continent, as they seek to balance protecting public health with economic disruption. Countries including Italy, France, Britain and Switzerland have taken an aggressive approach, banning large events and ordering large-scale blanket screenings. Germany, Austria, Spain and most Scandinavian countries, on the other hand, have stressed the need for moderation to limit the impact of the disease—and of the response—on society and the economy. The different approaches expose anxiety among Europe’s leaders that the economic impact of the epidemic could turn a lingering downturn into a full-blown recession, Bojan Pancevski, Giovanni Legorano and Jason Douglas report.

Follow the WSJ’s full coronavirus coverage here.

The Institute for Supply Management’s U.S. manufacturing index barely held in expansionary territory last month. “Tariffs have been overshadowed by the global coronavirus disruptions as the top issue on supply chain managers’ agendas—at 42% of general comments, up from 2.5% in January,” said Tim Fiore, who oversees the ISM survey of factory purchasing and supply managers. “I don’t think we’ve hit the peak of the impact.”

Tim Cook and Apple bet everything on China. Then coronavirus hit. The epidemic represents Apple’s third major setback there in as many years, including the fallout from tensions with the U.S. But Apple relies on a workforce of more than three million indirect workers in China, making a clean break difficult. The number of migrant workers in China, who do much of Apple’s production, exceed Vietnam’s total population of 100 million, Tripp Mickle and Yoko Kubota report.

Foxconn Technology, Apple.’s main iPhone assembler, expects the number of workers at its plants in mainland China to return to full seasonal level by the end of March if the coronavirus epidemic doesn’t worsen. As of Tuesday, Foxconn’s production in China reached 50% of its seasonally required capacity, said company chairman Young-Way Liu.

The Fundamentals

Before the coronavirus scare, how was the U.S. economy looking? Some top-line numbers are fairly solid. Housing and construction spending look good, global manufacturing seemed set for a gentle turn in the right direction after a U.S.-China trade truce, and overall hiring was expected to be steady—economists are forecasting that employers added 175,000 jobs and brought the unemployment rate down to 3.5% in February. The closely watched Atlanta Fed GDPNow model has economic growth tracking at a relatively robust 2.7% in the first quarter.

But there were also signs the economy was slowing. Factory employment was down from a year earlier in December and January, overall job openings have fallen sharply and employers have been cutting hours—possible signs of an inflection point, where the economy isn’t heading for a recession but demand for goods and services is no longer rising much. The result: What had been billed as a blue-collar boom was shaping into more of a bust in recent months. Friday’s jobs report will offer the latest snapshot of the labor market.

Fiscal Stimulus?

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WHAT ELSE WE’RE READING

Bill and Melinda Gates Foundation co-chairman Bill Gates says governments will need to kick in billions of dollars to slow the spread of the coronavirus. “Billions of dollars for antipandemic efforts is a lot of money. But that’s the scale of investment required to solve the problem. And given the economic pain that an epidemic can impose—we’re already seeing how Covid-19 can disrupt supply chains and stock markets, not to mention people’s lives—it will be a bargain,” he writes in the New England Journal of Medicine.

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