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Big Market Sell-Off As Chinese Virus Spreads



Global equities, crude markets and bond yields extended on their overnight declines as, between 1400GMT-1500GMT, news broke in quick succession that the Chinese Coronavirus had been detected in Vietnam, Singapore and Saudi Arabia.


Cases have now been confirmed in 11 countries, including; China, Hong Kong, Macau, Taiwan, Japan, Vietnam, Thailand, Singapore, South Korea, the US and Saudi Arabia. Moreover, three patients currently being treated in Scotland are also suspected of having the virus.

As things stand then, the global total of confirmed cases is now over 650, with 25 mortalities. But local doctors in Wuhan told the press they fear the actual number of infections could be as high as 6000.


With Chinese Lunar New Year just days away, a holiday period which typically involves extensive travelling to spend time with family in China, fears are growing that the increased movement of people could exacerbate the rate at which the virus is spreading.


Three Chinese cities, including the suspected city of origin Wuhan, have now been quarantined (all public transport and airports halted, and people told not to leave). Moreover, public Lunar New Year celebrations have now been cancelled and all three cities and also in Beijing, amid fears that large gatherings could facilitate the virus’ spread.


Perhaps fears at this point are overdone. China’s SCMP reported that the virus is mainly killing the elderly and those with pre-existing conditions. The hope is that the virus will, therefore, end up having a low mortality rate.


In the best-case scenario, the Chinese Authorities extensive actions to contain the spread will be a success, and the number of new people being infected every day will fall. However, the new year holiday period is normally one of massive importance for consumer spending. With ordinary people more likely to be scared to venture into the public for fear of falling ill, China is facing a severe hit to its economic activity at one of the most critical times of the year.


In terms of the longer-term market impact, please refer back to my blog earlier in the week. But to bring you a little more analysis on this topic; if this Coronavirus mirrors the scope of the 2002/2003 SARS outbreak, “such an outbreak would reduce the 2020 average Brent oil price by almost $3 per barrel”, Goldman Sachs said, based on their crude pricing model.


How did all of this affect the FX market?


The negative news, which sparked risk-off across asset classes, cause more risk-sensitive FX to sell-off. AUD, NZD, CNH and EMFX in general sold off. USD, which sometimes takes on safe-haven properties was lifted on the news, as were your more typical safe-haven assets JPY and gold. As a result of USD strength, EUR and GBP sold off.

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