There are several factors that will drive markets over the next few weeks:
- The coronavirus: the race to get ahead of contagion/spread as well as treatment outcomes.
- The supply chain disruptions: we thought the US-China trade dispute was bad, but the fall out from the coronavirus in terms of delays and backups could be far worse in terms of actual on-the-ground effects.
- Slow policy response: both the Fed and Bank of England mentioned the virus, but as usual have decided to wait rather than act.
- Finally, do not ignore the Democratic nomination in Iowa next week: Sanders looks like a winner there and is gaining momentum elsewhere in the US as well.
Some notes from the Economist:
- The World Bank has estimated that as much as 90% of the economic damage from epidemics stems from people’s fear of associating with others
- Hubei province, Wuhan capital, is approximately 4.5% of China’s GDP
- China is today four times larger economically to the rest of world than in 2003 (SARS)
- Bloomberg rank Wuhan 13th out of 2,000 Chinese cities for its role in supply chains.
- Chen Long of Plenum, a consultancy, thinks China growth could slouch to 2% YoY in Q1, its weakest in decades, down from 6% in Q4 2019. But he expects strong rebound when the country gets back to normal
- China government economist> Q1 GDP may slip to 5% (Source: Purevaluematrics’s Stephan Collet)
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Chief Investment Officer, Saxo Bank Group