According to new forecasts from UBS which take account of the effects of the coronavirus, the Chinese economy is now likely to grow at a rate of around 5.4% this year, down from the previously modelled 6%.
One of UBS’s assumptions is that the virus will be contained by the end of the quarter, and that the effects will therefore tail off as the year progresses. It’s a big assumption to make, but one which is part justified by a comparison to the effects of the SARS virus, which briefly unsettled markets back in 2003. That virus too began in Asia, and its effects in generating headlines and unsettling the investment community have indeed been comparable, albeit that it now seems clear that coronavirus is surpassing SARS in scale.
Nonetheless, markets as a whole appear for now to be following UBS’s line. A host of companies have released updates about the financial effects the virus will likely have on their bottom line, and there’s even some data out from South Korea which gives some indication of the potential impact at a national level.
So far, it’s fair to say that it’s serious, but not yet at crisis proportions.
The severity of the financial impact is also varied, depending on proximity to China, amount of business done in China, or the amount of business done with China. And although there are new reports of cases outside of China on a daily basis, including more than 60 new ones on a cruise ship docked at Yokohama, China remains the central locus and ground zero for both the physical effects of the virus and its financial impact.
At the worst end of the scale, Hong Kong’s economy is likely to suffer a contraction of 8% this quarter, with Taiwan not far behind, and the Chinese economy as a whole contracting for the first time quarter-on-quarter since 1976. These numbers are at the root of UBS’s decision to shave 0.1% off its global growth forecast for this year, a number which it now pegs at 2.9%.
Among the companies operating inside China, Disney has announced that it will take a US$280mln hit after it was forced to close down two theme parks in China that are usually busy over the New Year period. Other companies that have yet to release financial updates, but which have publicly stated they have slowed or stopped operations inside China include Airbus, Toyota, General Motors, Volkswagen, Nike, Adidas, H&M, Gap and Ikea. Royal Caribbean has said it will take a US$50mln hit as a result of the travel restrictions around Hong Kong and China.
The impact on the US economy remains to be seen. President Trump’s top economic advisor Larry Kudlow has said the coronavirus could shave around 0.2% off US growth, but markets responded positively to a well-flagged Chinese move to cut 1,700 tariffs on imported US goods.
The tariff reductions ought to have come anyway as a part of President Trump’s phase one US-China trade deal, but the alacrity and vigour with which they were flagged, coupled with the Chinese decision to pump more than US$242bn of new liquidity into the market, was well received internationally.
After initial nervousness at the end of January, when both the VIX and the gold price spiked, relative calm has returned, the VIX and the gold price have dropped back, and instead base metals prices and Treasury yields rose.
The big loser, to date, has been oil, with Brent down at US$55 and West Texas Intermediary at US$50 per barrel. An OPEC meeting in the first few days of February put coronavirus at the top of its agenda, but precisely what action the cartel intends remained unclear at the end of the meeting. As a bellwether for the global economy oil is worth keeping a close eye on. West Texas has dropped by nearly US$10 over the past month, and has just bounced off a 12-month low.
Another bellwether, copper, has also dropped off a cliff in the past month, but has also bounced slightly in recent days. If the coronavirus starts to fade, then that recovery is likely to gather strength fairly rapidly. On the other hand, if UBS is wrong, and the effects of coronavirus start to be felt into the second quarter and beyond, then all bets are off.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
