Risk aversion crept back into markets on Wednesday, as the death toll from the Wuhan virus continued to rise.
At least a 132 are now dead, and the number of confirmed cases is approaching 6,000. The US and UK have asked citizens to avoid any non-essential travel to China, and it’s possible the US will ban air traffic into and out of the country. The UAE on Wednesday reported the first confirmed Mideast cases in a family traveling from Wuhan. The US evacuated citizens from the city on a charter plane, which will land in California.
“In economic terms, the global economy has become more integrated and intertwined since [the SARS outbreak]”, ING noted on Wednesday, adding that “global air traffic, is currently more than twice as big as in 2003 [and] contrary to 2003, when Chinese tourism was mainly inbound-oriented, Chinese tourists have become a significant driver of global tourism”.
The implications, the bank writes, are simple: “The speed of the virus spreading could be faster than in 2003, while at the same time the negative impact on global growth could also be higher than in 2003”.
US equities were poised to trade positive, though. Apple should open at a record after what, by most accounts, was a great quarter. Outside of equities, the haven bid is perceptible again. The yen rose and Treasury yields retreated Wednesday.
The dollar is at a seven-week high.
Hong Kong shares plunged in the catch-up trade after reopening following the holiday. The Hang Seng fell 2.8% for the second time in five sessions.
Hong Kong-traded Chinese shares, meanwhile, had their worst session since the October 11, 2018 meltdown.
Remember, equity weakness on virus scares usually doesn’t last, although the initial drawdown can be painful.
(Nordea)
All eyes will be on Jerome Powell Wednesday. It’s far too early for the Fed to consider any kind of “response” to the virus outbreak, and Tuesday’s comeback rally on Wall Street as well as lower long-end yields, will allay fears of tightening financial conditions.
Nevertheless, Powell will be expected to play virologist in the presser, and folks will also be keen to know how the Fed is thinking about repo tapers and the next step for reserve management given likely T-bill scarcity going forward.
have to be careful when trying to determine the impact that SARS had on markets in early 2003. This was also the time period of the prelude to the iraq war. i went back and read the commentary on CNN money daily recap and all the reasons given for the market turmoil was related to iraq. i actually found no mention of SARS
H-Man, there was a very recent study done by a Dr. Jonathan Read that predicted by February 4 the number of detected cases would be 12,844 in Wuhan but the actual number of infected persons in Wuhan will be ~250,000. Currently there are 6,000 cases being reported with six more days to go. The bad news is that Dr. Read is reporting that travel restrictions will not really slow this thing down. If Dr. Read’s projections pan out next Tuesday, this could be the “big one”.
H-Man, musings on the virus. If it goes off the charts and becomes the “big one”, how receptive will the US be to receiving imports from China which may carry the virus?
Well, that’s an interesting question, and, in fact, it was posed by a Bloomberg executive editor in Hong Kong this week
H-Man, since I don’t subscribe to Bloomberg, the interesting question begs the interesting answer. Occams’s Razor suggests the reception of the China imports will not be received well by the US.
Lance Roberts realinvestmentadvice points out that the markets were just coming out of the 2000-2001 dotcom crash. There wasn’t much air under the markets then as compared to today. SPX was trading under the 39 week moving average till April 2003 whereas last 10 years that MA has been flat to uptrending.