RED ALERT Global ⚠️CORONAVIRUS & Economic Black Swan ,Trump, SOTU - financialanalysis

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Wednesday, February 26, 2020

RED ALERT Global ⚠️CORONAVIRUS & Economic Black Swan ,Trump, SOTU

Markets don’t like uncertainty, and it would be difficult to conjure a macro scenario more fraught with uncertainty than the one traders and investors are facing in the new week.
The weekend brought a deluge of disconcerting news on the coronavirus front, and Bernie Sanders now looks to have a choke hold on the Democratic nomination.
With risk assets already on the back foot coming off a lackluster Friday session, the mood was predictably sour out of the gate, as US equity futures fell as much as 1.2%.
The Aussie sank in recognition of the floundering outlook for growth and the assumption that the virus fallout may lead to demand destruction in commodities. As one analyst put it, “this can only be bad news for commodity currencies”. The Aussie is hanging out close to an 11-year nadir.
The IMF over the weekend trimmed its growth outlook as G-20 finance ministers and central bankers struck a cautious tone when they met in Riyadh amid headlines out of Italy and South Korea, where COVID-19 is spreading. South Korea confirmed an additional 161 cases, bringing the new total to 763.
“The world is getting spooky with virus clusters breaking out all over Korea with Japan not far behind”, AxiCorp’s Stephen Innes said, adding that things may be “about to get extremely problematic, and market conditions could get exponentially worse this week”.
South Korean Vice Minister Kim Yongbeom said a negative impact from virus is “unavoidable” and Seoul will announce “extraordinary measures” to support the economy. Chinese officials (including Xi himself) have echoed that assessment in recent days.
The won fell to its weakest since August and the Kospi is in trouble – that’s about the simplest way to put it.
Nouriel Roubini didn’t miss an opportunity to pile on, writing the following on Sunday:
Even in best scenario of a V-shape recovery China can’t grow more that 4% yoy in 2020. Even if Q2-Q4 was 8% ar rather than preshock 6%, with Q1 growth being at least -2% (qoq or -8% ar) you cannot get more than 4% yoy for 2020. So markets are lunatic to expect 5.5% for this year! If China grows at an annual rate of 6% (1.5% qoq) in Q2-Q4 like pre-virus while it contracts in Q1 at at least at the rate of 2% (-8% ar) then 2020 growth is only 2.5% yoy, a dramatic collapse. So even with V-shape recovery China & world growth will collapse.
Take that with a grain of salt, folks.
And yet, although it’s important to avoid trafficking in hysterics, it’s also important to be realistic. In the near-term, that means recognizing that anything growth-sensitive and/or commodity-linked is likely to come under pressure barring some kind of quick intervention (verbal or otherwise) from the PBoC or other “manna” from stimulus heaven.
Oh, and it’s probably best if we all just go ahead and be realistic about the trade “deal” – it’s now little more than a figment of Donald Trump’s imagination.
“The phase 1 trade deal is by the way most likely 100% dead already, since China will never be able to i) keep USD/CNY stable and ii) more than double imports from the US due to Wuhan, but they will be able to call on the ‘force majeure’ paragraph in the deal”, Nordea’s Andreas Steno Larsen and Martin Enlund said Sunday.
“A renegotiation awaits after the US election”, they went on to remark. “At least if Bernie doesn’t beat Trump.”
South Korean officials put the country on “red alert” (literally) Sunday following another 169 confirmed coronavirus infections.
That brings the total to more than 600, a 20-fold increase in the space of just five days.
The new alert level gives the government the authority to rush new aid to Daegu, the epicenter, and a designated “special care zone”. The government can now force citizens to cancel public activities and may also shutter schools, although it’s not yet clear what steps will ultimately be taken.
Read more about the situation in South Korea
As Yonhap notes, “it’s the first time the country… has raised the virus alert level to the highest in the four-tier system in 11 years since its previous step against Influenza A (H1N1)”.
“Closing facilities related to Shincheonji and limiting its members’ activities nationwide are unavoidable measures to protect public health and safety [and we are] not seeking to restrict religious freedom”, Moon Jae-in said, referencing the religious sect to which the country’s outbreak was traced.
“Although the situation is grave, we can overcome it”, Moon went on to remark, in a perfunctory show of defiance against a biological threat which, by virtue of not being sentient, does not understand expressions of human resolve. “The government has adequate ability and confidence to control and manage the spread of the infectious disease. Trust and cooperation are the way to win the fight against the virus”.
Meanwhile, Italy said cases in the Lombardy region nearly doubled overnight to 89 from 54, pushing the total for the country above 100.
The head of the Veneto region, Luca Zaia, canceled the last two days of the Venice Carnival, citing the outbreak. “As of this evening there will be a ban on the Venice Carnival as well as on all events, sporting as well, until March 1 inclusive”, he declared.
Earlier in the day, Zaia announced Venice’s first two cases of coronavirus. Despite a near total lockdown in the north, the infection continues to proliferate, although that might not be a fair assessment – after all, many of those falling ill could have already been infected prior to the imposition of the measures which, as of Saturday evening, include a travel ban and a variety of other emergency protocols.
In what may later prove to be a mistake, Italy isn’t seeking to suspend Schengen. Travel in Europe is, of course, borderless, and France is now preparing to see its cases jump. Health Minister Olivier Veran called the prospect of additional infections in the country “very likely” in light of the Italian situation.
In Iran, Health Minister Saeed Namaki said the rise in infections (which now total 43) likely originated in Qom, a Shia holy city.
“The virus came from China to Qom city. A merchant from Qom who died of the virus used to regularly travel to China”, Namaki said, adding that although flights between Iran and China were suspended, this person “used indirect flights”. “Obviously we do not recommend trips to Qom”, Namaki dryly remarked, on state television.
“Obviously”.
Schools in the city are closed and religious ceremonies canceled.
In Israel, authorities said they may quarantine around 200 South Korean visitors at a military base south of Jerusalem.

To be sure, financial markets aren’t likely to be enamored with how this situation developed over the weekend. As documented extensively in the linked post above, these kinds of lockdowns and curtailments of public activities threaten to choke off the services sector across multiple economies.
Throughout 2019’s mini-industrial recession, services activity generally remained buoyant. That resiliency is now in serious jeopardy.
Also in Italy, Milan canceled public activities, a move Bloomberg notes “will likely affect the final days of the city’s renowned Fashion Week”.
On Sunday, Xi was quoted as saying that although China’s (draconian) measures to stop the spread have been effective, the battle is “still at a crucial stage”.

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