ANALYSIS: CORONAVIRUS UPDATE & IMPACT

*CURRENT SCALE

• China’s National Health Commission has confirmed 2744 cases of the virus, and the death toll has now increased to 80 as of January 26th; additionally, over 30k individuals are under observation.


• Outside of China, the US has confirmed their 5th case (a further 63 are being monitored), as have Australia, while France have confirmed their first two cases. Additionally, the US are reportedly preparing for a charter flight to evacuate its citizens from Wuhan; similarly, measures have been touted for UK citizens, though nothing is confirmed for either group as of yet. France and Japan have expressed a desire to do the same as well.


• Other countries with reported cases thus far include: Japan, South Korea, Thailand, Taiwan, Malaysia, Singapore, Vietnam, Nepal and Canada


• (16:50 GMT) The CDC later announced that no further cases have been seen in the US, and that there is currently no evidence of transmission from imported goods, whilst at this stage the immediate risk to the US is low 

*VIRUS’ DEVELOPMENT

• China’s Minister of National Health Commission Xiaowei has stated that the virus, which differs from SARS, can be contagious throughout its incubation period; a period which averages 10-days but can vary from 1-14, with authorities adding that they do not yet have the virus fully under control.


• Clinical trials are currently progressing using ritonavir and lopinavir, anti-HIV drugs, as a potential treatment; but the Health Commission still states that there is not an effective anti-viral treatment. US Officials have remarked that, at present, there is currently no vaccine for the virus.


• China’s Finance Ministry and National Health Commission also offered CNY 60.3bln in an attempt to contain the spread of the coronavirus.

*LUNAR NEW YEAR EXTENSION

• 
  China has announced that the Lunar New Year holiday will be extended by an additional 3-days. At present, it is unclear if financial markets in the region will re-open on Friday once the original holiday period has concluded or remain closed until Monday in-line with the extension to the holiday period itself.


• While a significant move by the Chinese Government, designed to stem the spread of the virus during the heighted period of travel, it is a step which has taken place before. In 2003, due to the SARS outbreak, the May market holiday was extended by an additional 4-days.


• In terms of quarantines, according to the Beijing News, Beijing will not be instigating a lockdown of the city; wearing masks is now mandatory. Additionally, as of today, all tour group businesses are to be suspended in Beijing. CNBC’s Yoon, over the weekend, noted that China has imposed travel restrictions to Beijing – suspending inter-provincial road passenger transport from Sunday.

*MARKET IMPACT

• Impact in APAC is somewhat clouded by the number of market closures, but the bourses that are open have been under significant pressure due to the virus; Nikkei 225 (-1.9%) for instance.


• Additionally, a safe-haven bid is present across the JPY, debt complex and spot gold, albeit are all off overnight highs. WTI and Brent front month futures are down in excess of USD 1/bbl thus far as demand related concerns continue to weigh on the complex. Saudi Oil Minister Abdulaziz has downplayed the virus impact, stating that OPEC+ is flexible to respond market needs as is necessary.


• 
  Luxury and travel names have been most significantly impacted within Europe with the Stoxx 600 travel & leisure sector down in excess of 2% as is the broader consumer discretionary sector. As have energy Co’s, in-line with the complex’s price action.


• Hong Kong Chief Executive Lam has upgraded their alter level to its highest position and has stated the virus has the potential to extended Hong Kong’s recession throughout 2020. Additionally, a housing estate which the Government commented may be used as a possible quarantine facility if necessary was set on fire by the City’s protestors. Public Sector staff, including medical staff, have threatened to go on strike unless the mainland border is shut.

*CHINA IMPACT

• The scale on China is, as aforementioned, hard to determine. Government data for the Lunar New Year thus-far provides some indication. Railway Transport on Saturday 25th was -42% YY, passenger flights -42% YY and overall transport -29% YY.


• As a comparison measure, the 2003 SARS outbreak equated to a 11.1% impact on Q1 growth while Q2 saw a 9.1% impact; however, analysts note that consumption and services which are being severely impacted by the coronavirus are a much more significant contributor to the economy than it was in 2003., FT. With the services sector now equating to 54% of GDP vs. 42% of GDP in 2003 and as such the impact is likely to be more substantial., Danske Bank.


• Impact may also be exacerbated due to the virus striking in the midst of a prolonged trade war with the US, which has already weakened the Chinese economy.


• GDP could see a reduction of as much as 1ppt in H1 and may well prompt a number of stimulus measures by the Chinese Government., Danske Bank. Overall, the severity of the virus is difficult to determine with the length at which it remains significant issue for China/world and the driving theme for markets likely to be the main determinants for ramifications both in China and globally.

27 Jan 2020 - 08:37- EnergyData- Source: Newsquawk