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Everyone guessing about coronavirus economic impacts

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BOSTON/WASHINGTON — The coronavirus that spread from a seafood market in Wuhan, China to infect tens of thousands has shuttered businesses, grounded flights and killed over 1,000 people so far, mostly in China.

As the world’s second-largest economy struggles to get back to work after an extended Lunar New Year holiday, analysts and bankers have been revisiting their estimates of the economic impact of the virus.

Most believe China faces a short but sharper economic shock than originally thought, one that will be felt around the world. Expectations of how harsh the impact will be vary widely, however. Health professionals and economists say opaque Chinese data and lack of precedent hinder clear estimates.

China’s gross domestic product growth in the first quarter could fall to as low as 4%, Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics, estimated on Tuesday. That compares to Chinese government estimates of 6% annual growth before the virus emerged.

However, if the number of confirmed new coronavirus cases continues to decline, then adverse effect on annual growth will be much smaller, he added.

Analysts from S&P, meanwhile, estimated Tuesday that the virus could lower China’s GDP growth to 5.0% this year, with a peak effect in the first quarter before a rebound begins in the third quarter.

“The numbers are very imperfect, and that’s the basic reason behind the wide range of estimates,” said Lardy. “Everyone is guessing.”

Many economists and analysts are looking closely at the historical precedent from the SARS virus spread in 2003. But when SARS struck, China’s contribution to global GDP was just 4%, compared with 15% in 2017, and Chinese companies were much less integrated into global supply chains.

Any forecasts are also complicated by the fact that Beijing has a history of closely managing China’s economy to hit specific targets, and there were already doubts whether China’s economy could reach 6% growth this year.

Further, much remains unknown about the coronavirus, including its exact incubation period and the effectiveness of China’s quarantine measures, Catherine Troisi, a University of Texas public health specialist, said Tuesday during a National Association for Business Economics call on the virus’s economic impact.

The authoritarian nature of China’s government could also hinder the response by making officials afraid to report problems, she said, adding the latest update of around 43,000 infections is likely an undercount.

“It’s a culture that shoots the messenger. Because of the bureaucracy, local officials are afraid to say anything,” she said.

Headwinds from the virus could knock 40 to 50 basis points off expected U.S. economic growth of up to 2.4% per quarter for 2020, said Constance Hunter, KPMG Chief Economist and president of NABE, also speaking during the call.

Hunter, however, cautioned that could change if infection and death rates spike up. The virus could shave a percentage point off China’s revised growth rate of 5% for the first half of the year, she said.

Jay Bryson, acting Chief Economist for Wells Fargo & Co, said on the call that while some U.S. industries including air travel and electronics could be affected by a Chinese economic slowdown stemming from the epidemic, trade with China still accounts for a small part of the overall economy.

“We wouldn’t say this is going to bring the U.S. economy to its knees,” he said. “Americans are pretty resilient when it comes to consumer spending,” especially on services.

Supply chain disruptions “would have to occur for a while to have a meaningful impact,” he said.

It is unclear whether the coronavirus will prove more or less deadly than other similar outbreaks, Troisi added. “I’m not a fortune teller,” she said.

(Reporting by Ross Kerber in Boston and Heather Timmons in Washington, Editing by Rosalba O’Brien)

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Toronto Stock Exchange futures point to lower open as crude weakens

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Toronto Stock Exchange

Futures for Canada‘s main stock index fell on Monday, tracking weakness in crude prices, while sentiment across global markets was subdued on inflation pressures.

Brent crude and U.S. West Texas Intermediate (WTI) crude were both down 0.17%. [O/R]

June-quarter futures on the S&P/TSX index were down 0.48% at 7:00 a.m. ET.

Securities Foreign data for March is due at 8:30 a.m. ET.

The Toronto Stock Exchange’s S&P/TSX composite index ended 1.21% higher at 19,366.69 on Friday.

Dow Jones Industrial Average e-mini futures were down 0.39% at 7:00 a.m. ET, while S&P 500 e-mini futures had lost 0.34% and Nasdaq 100 e-mini futures were down 0.38%.

TOP STORIES [TOP/CAN]

Canada‘s Centerra Gold said on Sunday it had initiated binding arbitration against Kyrgyzstan government, after the parliament passed a law allowing the state to temporarily take over the country’s biggest industrial enterprise, the Kumtor gold mine operated by Centerra.

ANALYST RESEARCH HIGHLIGHTS [RCH/CA]

Bombardier: ATB Capital Markets raises to “speculative buy” from “sector perform”

Pan American Silver: National Bank of Canada raises to “outperform” from “sector perform”

SNC-Lavalin Group Inc: RBC raises target price to C$40 from C$33

COMMODITIES AT 7:00 a.m. ET

Gold futures: $1,850.4; +0.67% [GOL/]

US crude: $65.27; -0.17% [O/R]

Brent crude: $68.59; -0.16% [O/R]

U.S. ECONOMIC DATA DUE ON MONDAY

0830 NY Fed Manufacturing for May: Expected 23.90; prior 26.30

1000 NAHB Housing Market Index for May: Expected 83; prior 83

FOR CANADIAN MARKETS NEWS, CLICK ON CODES:

TSX market report [.TO]

Canadian dollar and bonds report [CAD/] [CA/]

Reuters global stocks poll for Canada

Canadian markets directory

($1= C$1.21)

 

(Reporting by Amal S in Bengaluru; Editing by Vinay Dwivedi)

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Britain’s pension fund USS invests 225 million euros in Spanish renewables

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British private pension fund Universities Superannuation Scheme (USS) said on Monday it has invested 225 million euros ($273 million) to take a 50% stake in Bruc Energy, which develops renewable energy projects in Spain and Portugal.

The inflow of cash into renewables in the Iberian peninsula is an encouraging sign for the industry after recent setbacks.

Renewable power group Opdenergy shelved an initial public offering two weeks ago citing “unstable conditions in markets” and shares of rival Econener plummeted 15% on their first day of trading a few days earlier.

Bruc Energy, which was created in Spain by Canadian pension fund OPTrust and Spanish businessman Juan Bejar, is planning to develop solar projects in Spain and Portugal for a total potential capacity of 4,000 megawatts.

“The long-term nature of solar and the steady returns make renewables attractive to a pension scheme needing to pay pensions for years to come”, Gavin Merchant, USS’s co-head of direct equity, said in a statement.

The transaction was advised by Royal Bank of Canada (RBC), Greenhill and Nomura.

($1 = 0.8229 euros)

 

(Reporting by Cristina Galán, editing by Inti Landauro and Emelia Sithole-Matarise)

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Canadian dollar moves to extend weekly win streak as oil rebounds

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Canadian dollar

The Canadian dollar strengthened against its U.S. counterpart on Friday and was on track for its seventh straight weekly gain as oil prices rose and domestic data added to evidence of robust economic growth in the first quarter.

Canadian factory sales rose 3.5% in March from February, led by the motor vehicle, petroleum and coal, and food product industries, while wholesale trade was up 2.8%, Statistics Canada said.

The price of oil, one of Canada‘s major exports, reversed some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States.

U.S. crude prices rose 1.2% to $64.61 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2093 to the greenback, or 82.69 U.S. cents, moving back in reach of Wednesday’s 6-year peak at 1.2042.

For the week, the loonie was on track to gain 0.3%. It has climbed more than 5% since the start of the year, the biggest gain among G10 currencies, supported by surging commodity prices and a shift last month to a more hawkish stance by the Bank of Canada.

Still, BoC Governor Tiff Macklem said on Thursday if the currency continues to rise, it could create headwinds for exports and business investment as well as affecting monetary policy.

The U.S. dollar fell against a basket of major currencies, pressured by a recovery in risk appetite across markets after Federal Reserve officials helped calm concerns about a quick policy tightening in response to accelerating U.S. inflation.

Canadian government bond yields were lower across much of a flatter curve, with the 10-year down 2 basis points at 1.549%. On Thursday, it touched its highest intraday in eight weeks at 1.624%.

 

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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