How coronavirus affects the Global finance -
By -Prabir Rai Chaudhuri
volatility and uncertainty
The fiscal performance have been under
substantial pressure, volatility and uncertainty since COVID-19. At the end of
February 2020, the global equity markets were in a freefall. Many are still
doubting the severity of this quickly spreading disease, but as these bottom
buyers are finding out, the big picture still views this uncontained epidemic
as not seen through. This timely blog on Perspectives explores the virus’
impact on global financial markets from a regional perspective.
What has happened?
Referencing pecuniary data, recent and historical, we see that the
rhythm that COVID-19 is spreading much faster than prior epidemics (SARS, swine
flu) in a limited time frame. The timing of this contagion has also been an
issue to deal with. China has been going to see an commercial recover from a
tepid 2019 and the first wave of trade negotiations with the U.S. were just
underway. The effectiveness of imports to China have directly related the
export economy of countries around the world. This has an prompt effectiveness
within oil, LNG, agricultural goods and metals. In oil, we have looked desire
from China, the vast net importer of crude oil, take away nearly ten percent of
global demand in January. In 2019, China was imagining in a gross of 10.12mm
b/d, so far this time we have seen this number fall to ~7mm b/d in January and
February. The International Energy Association’s Fatih Birol has been quoted as
saying the revision for 2020 oil demand will numerate to the lowest in a
decade.
The longer-term effect may be
deleterious for environmental concerns as well, because China is a major
supplier of battery materials. We have yet to see the financial results of
these complications, but they do not bode well for Q1 or Q2 results for
manufacturers, producers and their respective country economies.
What is happening?
Image credit Google
As anyone in the financial markets will tell you a moment in time is
an eternity when the markets are moving. We’re obviously watching the store roiled
as updates come along. To day we now have looked the US Federal Reserve come
into the market with a 50bps interest rate cut, in which a cut was anticipated.
What wasn’t anticipated was the way this was announced. date after we were
sworn from President Trump over the weekend that this was not a time for panic,
the Fed acted. This marks the first day the Fed has troubleded outside the mean
Fed meeting announcement and with such a large cut (50bps) since the financial
crisis in 2008. To add, there have been statements from President Trump that
more cuts should be considered. The target is to be proactive and action needs
to be carried sooner than later. This shows us to the other place that we
viewed with concern final week, OPEC. In this scenery I note that OPEC should
have acted as soon as quarantines were in effect in China. China is not only
the lesser vast budget behind the US, but they are the world’s largest oil
importer, in two thousand and nineteen Reuters estimates that China imported an
average over 10mm b/d . China stole over this mantle from the US in two
thousand and seventeen when the US averaged 4.5mm b/d vs. China 7.5mm b/d
(source EIA) . With China at a near standstill on property as well as a decline
in exports, the want for oil was severely diminished yet OPEC stood pat. It
wasn’t until today, the first week of March that OPEC has indicated a cut in
production of 600K b/d. This falls temporary of store expectations in timing,
but also in volume. Most guessed OPEC would be preemptive and announce a 1mm
b/d cut in production. Oil markets have since been in decline and it’s likely
that we will continue to see this move lower until further actions are
executed. plenty untruth ahead, but I hold steadfast that the best way for
investors and corporations to stay ahead of the developing situation is to stay
well informed. Reliability of data and news are the keys to keeping calm in the
waves of volatility.
What may happen?
In two thousand and two to 2003, we had
behaved with the SARS epidemic. That risen the beginning of two thousand and
two with a peak in mortality and cases coming by June. As enumerated earlier,
this onset has climbed rapidly and we’re only two months into the move. The
count of cases revealed are moving quickly above 80k worldwide with the
mortality numbers surpasing 2,700. As this moves to make its step through
quarantines and fiscal isolations, the impact seems to be rising at a
compounded rate. The most crucial portion of this epidemic and its pecuniary
and social implication, is that people need to be aware. There is a active
occasion that this moved pressure and spreading contagion will push the global
economy into recession. In the oil markets, it’s possible that we see oil
prices drop to lows seen in 2015 under $30 a barrel. With a point in the fiscal
and commodity markets, the keys to sustaining balance is to stay informed.
scrutinizing note markets are as crucial as covering import and exports of
commodities. There is no practice to foretell such a shadowy swan’ event, but we
can compare prior markets as they make their way through these critical
anomalies. As everything in this planet is a current news event, everything
follows a cycle that is familiar. provincial effectiveness Asia fiscal impact
The deepest cut to the Asian regional economies remains with China. Japan moves
to find intractable footing and this onset has pushed it off course. For what
it’s worth, Japan continues to fall upon dreadful timing, as it was looking for
a promotion from the two thousand and twenty Olympics. South Korea’s latest
rash of occurrence poses another threat to the once robust oil and natural gas
market. Taking China out of the equation has been bad enough, but to see the
other main importing energy countries, Japan and South Korea in the mix, it
becomes a dilemma. concentrate on the China savings market and its applicable
indexes, it seems like we’re seeing some flattening out from the decline. There
has been a recognizable bounce off the lows in late January, but we seem to be
far from the end of this pandemic. One should treatment all of this with an
ready mind and think of all possibilities. To imagine that the China deal are
operating as common might be a bit gullible. Behind neighung doors, it’s
probable that China is limiting disclosure to open trade. After the Chinese
recent Year, as investors sayinged to the markets, short selling interest in
the stock market was limited by the Chinese Securities Regulator. It is
possible that these regulations are still in place but enforced behind closed
doors. Another consideration about the Chinese stock market and its real
purpose is to know who is trading. China’s savings market is followed up mainly
of retail investors. These investors threaten the money invested in the market,
by some accounts, up to seventy-five percent. With various society unwell or
quarantined, it’s likely that these investors are not trading as normal. This
raises the question: Is the bounce in the market really holding at these levels
or will there be more volatility and downside exposure to come? goods It is
simple to lift China data out and see the major impact on commodities. If we
only consider the impact this has had on the recent trade negotiations with the
U.S., we scrape the surface of how this cascades into all commodities imported
and exported from the second largest economic nation in the world. property of
crass oil have sew a wall that will take months to recover. regional Chinese
refiners are looking credit lines pulled in fears that they will not be able to
make payments. OPEC has not budged over the past month and any movement from
them will take weeks to affect the depressed market. To be fleeting when we are
arguing about commodities, this is complicated and understandably a situation
that will take time to be repaired. The goods market impact is well beyond oil.
The cultivation trade urge continue to see important issues. The gold market
yeing come under pressure. discuss that copper and iron ore have already seen a
slump from declining demand in China, and this will continue. attack components
may be the one commodity overlooked. With a significant amount of minor metals
sourced from China, markets for computers, mobile phones and EVs will feel a
crunch. That of term is only a review of China’s market. observing to the
widespread view, the losses of South Korea and Japan is a considerable loss for
the energy industry. These government run up for huge imports of crude oil and
LNG. As they move to feel the effectiveness of this pandemic, their respective
economies will slide also.
As we lose through other province in
this paper, it’s essential to state here that this is not only an opinion of
what still may happen, but also a paper on the preparation of another pandemic
that will likely happen. In these former twenty years, we have had particular
onset of unknown diseases that have caused panic, quarantine and fatalities.
The lecture that we should learn from all of these is that they are never
easily solved. Most carry at slightest a time to reach the end stages of an
outbreak. It is essential to recognize that we need to learn from historical
cycles. Although not indicative what will happen in the future, but a guide to
what we know can and will happen coupled with a large dose of the unknown.
North America fiscal shock The latest week of February has been the most
significant decline in the U.S. stock market over the past four years. Unlike
most sweep in the stock market these old scarce years, the reasons behind this
move is well defined. From my contribution of traders and analysts, there is
still an optimism that the market has pompous the sentiment.
Even President Trump has sent
embarrassment and anger over the U.S. stock market declining at such a rapid
pace.
Image credit Google
Unfortunately, the decline continues as COVID-19 cases continue to rise.
The consideration that we should be having is not about this new market, but
the future earnings of the companies in the U.S. indexes. The effectiveness of
poor imports and exports to the serious economies in Asia are going to show up
in Q2 and Q3 results. We have risen to see the U.S .Fed take these things into
consideration and talks of an interest rate cut are starting to come to light.
When we move to think about an concern rate cut at this time, it may be a happy
thing for the U.S. and help shake off the weakness, but it’s not going to solve
global trade. A fragile USD may seem an charming selection for trade, but it
place pressure on emulating countries also affected by poor trade. The effect
may become an all-out currency battle that will need some fiscal strength
somewhere to counter the issues at hand. This seems an unclear plot with this
pandemic still in early stages. This is where we must remember the basics of
economics; cause and effect. stocks We have risen with a focus on the U.S., but
we’ll shift to Canada and Latin America to start our commodity outlook. We need
to begin with Canada and the onus of its vulgar oil supply. With the current
publication relating Teck Resources, it’s a compounding issue within this
country.
The CEO of TECK mentioned that Canadian
regulations are a difficult hurdle to get over but seeing the overall standing
of crude oil supply globally may have had some effect on this decision. Since
the U.S. moved the crass salts export ban in 2015, the U.S. has become a major
global oil supplier. This has been a arduous edition to deal with in Canada as
it has always seen to the U.S. as its major consumer. In recent years, Canada
has worked to figure out ways to move its oil out to the global market, but transportation
costs have been a detrimental impact to margin. With the onset of this virus,
we’re seeing vulgar oil supply accumulating globally. This cannot be a happy
notice if barrels are staying to leave the U.S. Gulf and Canadian barrels
become landlocked. It is possible that the biggest impact on crude oil will not
come down on OPEC+ or the U.S., but in Canada. There may be some hope for the
goods market in Canada. We’re once again likely to see a careful haven trade to
gold. During moment of uncertainty and instability, gold has been a winner. The
investment into this commodity may bolster production and mining in the country
as well as in Latin America. Latin America has always been a robust trade
agency with China, but it’s been a diverse group between oil, grains, softs,
livestock, and metals. Most land in Latin America check continue to maintain
fiscal stability if the U.S. remains viable. If there is an outlier to this,
one should think about the suffering budget of Venezuela. Losing China as a trade
partner and perhaps as a once solid backer of credit, the country may fall
quickly into an economic collapse. losing to the U.S., it comes down to the new
trade negotiations. The U.S. was in the choice ten of oil importers into China
in two thousand and eighteen ($6.8B). This consiung for about twenty-five
percent of the oil China imported in 2018. As we pulled into two thousand and
nineteen and China put toll on U.S. oil, U.S. crass oil quickly dipped to about
five percent of their import in 2019. Perhaps this was a keeping love after the
demand decline from COVID-2109 , but there holds a yard of supply in the global
market. The convalescence of demand is not likely to arrive quickly and absorb
the overhang. If the global economic picture continues to decline because of
this virus, there will be more supply and a much longer wait to absorb the oil.
A stocks that is admitting the heavy blow in the U.S. from this crisis is LNG
(liquefied natural gas). easy steam prices in the U.S. have been under pressure
for the ancient year and this now puts it under more stress. One of the hopes
for this commodity has been the shift to more LNG exports. In South Korea, the
U.S. improved its LNG significance by 5.5 percent in 2019. That consiung for
eighteen percent of that country’s LNG imports. The latest wave of COVID-19
onset in South Korea fing likely influence all energy imports from the U.S. The
one that matters though is natural gas. moving any place now, the U.S. easy gas
market will come under more pressure to cut back on production and increase
storage. Not an simple shift to do when there is still a important amount of
associated gas from oil production. This also does not bode well for society
that have been combine on building out LNG export terminals.
The demand will return, but these projects now
must consider a revised budget and forecast. cultivation in the U.S. urge feel
the effect of poor demand from China, but again the recent trade wars have
already stemmed the tide. One would have never had the foresight to predict
that learning to cope with weaker trade because of tariffs would mitigate the
pressure brought on by this pandemic. What now survives is to see how long the
U.S. husbandry producer can hold without China’s demand. There is hope that
Japan may make up for some of this losses with the upcoming two thousand and
twenty Olympics, but that is a huge question mark on how it unfolds. We have
imagined this flu off to a fast start, but containment is key. If imagined back
to tractable levels, we should see sufficient day for Japan to prepare for the
Olympic commercial boon. That should be enough for the U.S. to pull through
these tough times in agriculture. EMEA This may be one of the few areas that
have not seen significant economic implications, but with cases rising in Italy
and Iran, all eyes are on the area. fiscal strike As we moved 2020, one of the
main focuses in this region was dealing with Brexit. Although it’s moved out of
the spotlight for now, this may become an critical issue for the EU and the UK
down the road. We have apprehended from the EU Commissioner during the bottom
week of February and he has stated it is too early to tell about the fiscal
effect from COVID-19. What we have been reviewing through this whole paper is
that we don’t expect to see much more around the immediate effects, but we do
expect the future effects to compile. Germany has imagined the expectation and
is slipping into stagflation. It has noted that if the flu outbreak continues
to affect other serious economies, it is likely to suffer as well. It’s a hard
shift to pull a country’s economy out of recession, inflation or stagflation.
It’s is obviously much more difficult to do so under pressures from a global
virus outbreak. serious nation such as the U.S. and China deal with major trade
agreements. In other countries, trade market may be of a little amplitude, but
these minor deals are also those that are susceptible to being affected the
most. serious place such as Wuhan may favor trade with easier-to-deal-with
countries. If this remains true, shutting down Wuhan will have a serious fiscal
impact on those trade partners. Since they are minuscule trade partners, they
are also elder dependent on these deals. That leaves a large amount of exposure
that we may not see in the major stock market moves, but something that is
going to evolve over time. goods This area presume a lot on how the recent
outbreak in Italy progresses.
The global duration is quite important,
but if there are other cases in Europe, it may cause concern over serious
shipping areas for commodities. Obviously, the ARA
(Amsterdam-Rotterdam-Antwerp) place yeing be the focal point of concern. This
port area accounts for more than 25 percent of Europe’s crude inflows and is a
major point for turning this crude around into refined product exports.
Shipping urge be at risk the most in this area regardless. We’re seeing
shipping rates in steep decline (~80 percent) to result the month of February
and those may continue. It’s hard to imagine how the shipping industry is
surviving particular blows to rates over the ancient few years. This one could
be one of the most detrimental to date. The mean East has the most at peril
when it finds to oil and China. The Saudis and OPEC have rejected to act during
this outbreak, but it’s likely that debate with Russia may have played a part.
The Saudis are the second-largest importer of crass oil to China behind Russia.
If Russia is not inclined to chop its manufacture and supply to China, the
Saudis are not going to make a move either. That in turn leaves OPEC without
its leader to lead any cuts in production. This yeing not bode well for
oversupply in the global markets and if this virus continues to evolve, we will
find the oil supply in a point of no return. We have looked a same circumstance
back in two thousand and fifteen when OPEC refused to deal with the U.S.
fracking boom. That happened in a serious quantity glut and saw prices drop
from over $ 100/bbl to under $ 25/bbl. Lessons are expected to be learned from
past mistakes, but we are a stubborn society full of optimism in stable
economic times. Conclusion In 2019, I run different performance to various
groups in the financial and commodity markets. All these performance
concentrate on the similar thing, ‘The Unknown Unknown’. I was directly quoting
previous U.S. Secretary of Defense, Donald Rumsfeld. Most of the day I had a
chuckle in the audience, but the truth is I was right. It was this ‘unknown
unknown’ that created one of the biggest global financial crises we’ve seen since
the Great Recession. This is an critical shift to note. For those that still
see at the global inventory markets as overwrought to the downside, there is a
lot that we still don’t understand. A lot that we don’t know and more that we
cannot know. How to trail the market developments: The Corona Virus app in
Eikon is your different destination to pursue track on the key market moving
headlines as well as the charts, data and impact analysis on the markets,
sectors and commodities asset classes. If you’re an Eikon user, simply spy for
‘Corona Virus’. If you’re not a user, get resource now or switch to
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