At the risk of stating the obvious, the news flow around COVID-19 on Saturday was not what one might call “positive”.
Barring some breakthrough, policy intervention or material improvement in the general trajectory of the situation, risk assets are likely to remain displeased in the new week, especially on the heels of China’s official PMIs for February which painted a dire picture (although I would again caution that a plunge in indicators of Chinese economic activity should not be greeted with surprise, no matter how dramatic – the country was on lockdown for weeks).
Iran has reported hundreds of additional coronavirus cases, and the infection total in South Korea continues to climb, topping 3,000.
In the US, it looks as though Americans may be on the verge of seeing additional cases on the western seaboard, after officials in California, Oregon and Washington State all confirmed new infections. Three of the four new cases occurred in patients with no readily discernible connection to the disease (the fourth had recently been to South Korea).
A patient in King County, Washington State died, state Health Department spokesperson Jamie Nixon announced Saturday. “New people (have been) identified with the infection, one of whom died”, state and King County health officials said, without elaborating on the number of new cases.
“We are dealing with an emergency evolving situation”, Amy Reynolds of the Washington State health department told AP, over the phone.
“It is a sad day in our state as we learn that a Washingtonian has died from COVID-19. Our hearts go out to his family and friends”, Washington Gov. Jay Inslee said. “We will continue to work toward a day where no one dies from this virus”.
Donald Trump – whose administration was variously criticized last week for what some say is a lackluster response to the burgeoning public health crisis – accused Democrats of perpetrating a “new hoax” by “politicizing the coronavirus”.
“For him to start talking about it being a hoax is absolutely dangerous”, Joe Biden said, on the campaign trail in South Carolina Saturday. “It’s just not a decent way to act”.
To be fair, Trump wasn’t suggesting that the virus itself is a hoax, but regardless, Biden’s criticism stands.
And here’s the thing: If you’re Trump, and you care at all about guarding against the possibility of another egregious plunge on Wall Street, just about the last thing you want to be doing is undermining the public’s faith in the government’s response.
Read more: One Simple Reason For The Nightmare On Wall Street
France, meanwhile, canceled large indoor gatherings (5,000 people or more) and nixed the Paris half-marathon. The country now has more than six-dozen infections. Schools in and around two French locales where the virus is prevalent will not open on Monday.
In addition, Iraq delayed an oil conference scheduled for next week in Baghdad and Azerbaijan closed its border with Iran, where cases surged more than 50%. Five members of parliament have the virus.
And on, and on. You get the idea. Things are not improving by any conventional definition of the word “improve”, although Trump may conceivably have a different take on things given his almost superhuman penchant for spinning objectively bad situations as “wins”.
Next week brings a raft of critical economic data in the US, which has the potential to roil markets further (or the opposite). Remember, ISM manufacturing bounced back into expansion territory in January for the first time since July. But, the Markit PMI (which had been the “good cop” between the two for the entire time ISM was mired in contraction) disappointed in the flash print for February.
Of course, it could all be overshadowed by central banks. “This week is filled with what are typically very market reactionary and essential data releases [but] given the collapse in risk assets and a sharp repricing of Fed rate cut expectations, market attention will likely focus on Fedspeak”, AxiCorp’s Stephen Innes said Saturday.
Calling this a “critical juncture” for markets (and the world) seems like a laughable understatement, but there it is.
“So it was right not to ‘buy the dip””, Rabobank’s Michael Every said, in the Friday edition of his global daily macro note, before adding the following amusing bit:
The WHO helpfully stress that this “could get out of control” but still isn’t a global pandemic…so closing down global travel is not a solution. In hindsight, and not being the head of a World Health Organization, might I ask if perhaps having done so a month ago might have done the trick?
You might, Michael. But, as Jeremy Irons’s character in Margin Call put it: “That’s spilt milk under the bridge”.
Is it just me, or does anyone else think that Super Tuesday potentially turn into a “super spreader” event? There are an unknown (largely because the CDC had been constraining who could be tested until yesterday) number of people with coronavirus in the United States. We know this because of the handful of cases of “community spread” that have been identified on the west coast. Now, millions of people are about to go out and vote, which means people in close quarters at the polling stations, handling the same objects and surfaces. If we’re lucky, there are very few cases within the public at large right now (again, because of the lack of testing we just don’t know), and so the potential to spread will be low. But if there are a meaningful number of people infected that show up at polling stations on Tuesday, it seems like this could lead to an explosive growth in the number of cases.
That’s an interesting angle on voter suppression.
To be clear, I’m not suggesting that the primaries should be delayed. That would be a serious over reaction based on the information that’s currently available. I’m merely trying to point out (again, due to the lack of testing over the past couple of weeks) that the information we do have – that there are still only a few cases within the US – might be inaccurate. If this is the case, and there are dozens or hundreds of cases “in the wild” in CA for example, then the primary elections (which entail large groups of people gathering in relatively close proximity) could serve to spread the infection in a dramatic fashion (“Super Spreader Tuesday” if you will).
However, you’re right. For a more paranoid long-term take, if this does turn into a nationwide outbreak with 40%+ of the country being infected (as some experts are anticipating) then you could certainly imagine this being used as a pretext for delaying the elections. Furthermore, even if an election did take place as scheduled, you could expect that in such an environment voter turnout would be dramatically suppressed (perhaps so much as to call into question the legitimacy of the election? – I don’t know).
It really depends on the global central bank response. If, when and how much.
@ Bob. Not sure about that. If the Fed cuts by 50 or more points we get a violent relief rally, but if that is followed by a steady drip of bad COVID19 news, then I suspect risk assets head south once again. But that is probably the obvious trade so something else will happen ….
“But that is probably the obvious trade so something else will happen ….”
People have been conditioned by ten years of central bank responses to buy the dip, Fed funds futures indicate a 95% probability that the fed will cut to 1.00-1.25 by march 18th. The Fed always, as our host has already posted, ‘bends the knee’ to the market. Whether any gains will stick is an open question, but I wouldn’t be surprised at the rapid onset of more QE.
If you’ve only got a hammer, every problem is a nail.
“Buy the dip,” in the sense you’re referring to, already failed. It would have brought back to even or close to even after a couple of down days this week. There may be one heck of a bounce on Monday, but you’ll do well to sell into it, even with Central Bank intervention. As I said on a previous post, throwing cash at a virus just gives you a pile of virus-infected cash.
Which may be the last time toe sell for some time.
I think this could turn into a 9/11.
Maybe Trump tries to cancel the Census or the election citing Covid19 risks.
I think we’ll get a tradable bounce. I mean, tradable both ways.
Is maybe early stage of crazy: VIX much higher now than after 911!
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H-Man, there is a lot of spilt milk under the bridge. Rather than cutting rates, the Fed would be better off by creating a credit facility to be used to counteract the virus. I am not talking about a couple of billion which is a drop in the bucket. We are ill prepared if this forest fire breaks on the ridge since we have no idea of the direction. We will need $$$ not only for medical support but to restore supply chains in the economy. Currently there are 62,000 ventilators in the US, most of which are being utilized in ICU’s with existing patients. Throw in a shortage of surgical masks, R95 ventilators, haz mat suits. We are talking about a bigly credit facility. If you think I am simply wailing and hand wringing, try and buy some hand sanitizer or disinfectants. Meanwhile the flow of information to the market is simply negative, negative, negative and that mantra does not appear to be ending anytime soon. Trying to price this market is like nailing jello to the wall. And every time you try and nail it, you’re lower on the wall.
Long term investors bought at good prices last week.
They’ll be able to buy at better prices this week.
I would think at a substantial discount.
Margin Call is such an underrated movie, lord.