Highlights from February 2020 – Coronavirus moves the market; Oil down 27% so far in 2020; Equities Collapse; U.S. Treasury yields hit all-time lows; Japanese Q4 GDP falls big

Coronavirus – Worse than SARS and MERS

The new Coronavirus (officially named COVID-19 now) infected 85,000 people at the end of February (up from 9,500 at the end of January). It is far more widespread now, not just in China but across other Asian countries. Far worse than SARS and MERS already – will this turn out to be a global pandemic?

Like we wrote at the end of January, given the pace of acceleration of cases, this was always going to be far worse. China has 15 times more international flights than it did in 2003 – there is no way this can be contained given how infectious it is. Countries are closing their borders (albeit only partially which will not really work). This is going to spread far and wide, the question is will other economies go into lockdown like China did? It they do, we will be living in truly unprecedented times, this time it is going to be quite different.

Oil already down 27% this year

WTI crude is already down 27% this year. Half of this fall came in February due to economic disruptions caused by Coronavirus. There are also larger production cut tensions between Russia and OPEC countries, this will inevitably cause oil to remain weak for a sustained period of time.

 

Equities collapse

On back of the spread of coronavirus, equities globally collapsed. The Japanese TOPIX had the biggest fall in developed economies at 10.4% followed by the UK FTSE will a fall of 8.9%, closely followed by the U.S. S&P 500 with a drop of 8.2%. The MSCI Emerging Markets Index was down 5.3% and did better than developed markets.

 

U.S. Treasury yields hit all-time lows

U.S. Treasury yields continued their downward spiral. The US 10-year Treasury yield fell to a new all-time low of 1.1% (not negative like Japan, Switzerland or Germany but moving in that direction). U.S. government bonds returned a solid 3% during the month.

Japan Q4 GDP

Japan’s Q4 GDP fell at an annualised rate of 6.3%, its worst reading since 2014. The economic contraction was far worse than expected and with Coronavirus potentially expected to disrupt the economy further, the signs are not looking good. Will the Olympics scheduled for summer be disrupted? Time will tell but any disruption or delay would likely cause a major economic impact.

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