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 goning 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? 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. 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 Eikon.
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