Corona Virus Weighs on Risk, Oil Dumped
The coronavirus is increasingly drawing the attention of the financial markets and escalating headlines about infections are putting traders on edge. Chinese officials halted travel from Wuhan, locking down the city of 11 million people as they confront halting the spread of a new SARS-like virus that's already killed 17 and infected nearly 600 people. More below on how this compares to SARS in 2003. Aussie is the highest gainer on reduced expectations for an RBA rate cut next month after an unexpected decline in the jobless rate. Global indices are down across the board, oil extends its tumble, CAD fell sharply after the BoC issued a dovish hin, while JPY and bonds resume their ascent. The Premium trades in short oil and long cable are deepening in the green, while the EUR trades await the ECB's 500th ECB policy decision, due later today.
Corona Virus Now vs SARS in 2003The outbreak of the Corona virus is especially scrutinized as it coincides with the upcoming Chinese Lunar New Year, which involves the largest human migration in the globe as train and air travel ascends in and out of China. Beijing is one of the most traffic-jammed cities in the world, but it's said that in 2003 during the height of the SARS outbreak, the only thing drivers had to worry about was getting a ticket. The city was on lockdown and virtually every face was covered by a mask.
The economic impacts were real, estimates vary but the curb to GDP growth was somewhere between 0.8 percentage points and 2.0 points. It also weighed on other countries, particularly in east Asia. SARS eventually infected more than 5000 people in China and the path of coronavirus appears to be similar. In that case, the WHO issued the first alert in mid-March and didn't declare that the world was nearly SARS-free until the end of June.
Ultimately, this virus will pass and growth will resume but we're at the point in the cycle where the numbers and the fears will continue to rise. One area that was hard hit in 2003 was commodities, which struggled during the height of the fears. However this will ultimately be a buying opportunity for risk assets, but not yet.
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