The recent outbreak of the Coronavirus has caused a lot of shifts within the financial markets. We are hearing the outcome of the emergency meeting on the Coronavirus. The World Health Organisation (WHO) has said that the Coronavirus virus is an internationally healed emergency. We have seen a predominant drop on some global indices in contrast to a major rally in safe haven commodities such as gold. That said the situation from a social standpoint is far from resolved. While the total number of infections and fatalities continue to grow, the percentage growth rate has lowered in recent days. However, with that in mind the figures released from China state that growth of infections has stabilised to “only” to around 25-30% which highlights the severity of the outbreak.
It is currently premature to speculate on the long-term economic implications on the virus, forecasting the quarterly outcome is somewhat more realistic. It is likely we will see a slow growth in Q1 for many Chinese companies as they deal with the virus containment. A lot of time and money will be spent researching remedies. There are tentative signs that the Chinese authorities may be slowing the growth rate of the infection, a critical step towards ultimately containing it.
Based on recent market data we have to assess; we can see a significant drop in China's GDP. With the previous SARS virus taking off 1-2% it seems that the coronavirus is likely eclipse the figures but have definitely shadowed the death rate. Based on these factors’ traders have aggressively sold Chinese assets, with the China A50 Index losing approximately 12% over the past two weeks. we can see from the chart below that the drop from 14706.6 to 12790 equates to around 12.68% which is a detrimental and very strong shift in momentum for the Chinese economy.
On the other side of the spectrum we can see the steady rise in commodities as Gold has gained over 2% since the outbreak as we see the confidence of investors and traders shift from other assets to the safe havens. Gold has risen from the 1550 to 1590 since the outbreak. Whilst this only equates for a 2.23% gain there are analysts who are predicting the commodity to smash the previous high at the 1611 level where we would be breaking into new territory.
Furthermore, we have seen USDCHF break a critical technical level of 0.970 and retest off the current level indicating a possible move further down which correlates with the strengthening of the Swiss Franc (CHF) as a major safe haven. The move resulted in a 0.89% decrease of the currency which Is not as significant as the other instruments that have been analysed yet supports the correlation. This move in particular comes off the back of a staggering 3.24% drop from the 1.000 level with a target of new yearly lows of 0.955 equating to 4.37%.
To conclude as previously stated, the long-term implications beyond the first quarter of 2020 is, as of now, far-fetched. Though based on recent data and news that the virus has become a global crisis it would not be a surprise if we were to see further market downfall on certain indices and assets. Though we aim to keep you updated on our analysis.