Coronavirus Economic News 29February 2020

Written by rjs, MarketWatch 666

The news posted last week about economic affects related to the Wuhan coronavirus, 2019-nCoV, has been surveyed and some articles are summarized here. Although it is obvious that there will be some economic impact in China, the extent is not yet clear. (Picture below is an empty street in Beijing from The South China Morning Post 19 February.) Articles related to the U.S. political and economic impacts are first, followed by global news, with an emphasis on China. News items about epidemiology and other medical news for the virus are reported in a companion article.

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Goldman cuts US first-quarter GDP forecast to just over 1% on the coronavirus – Goldman Sachs lowered its U.S. growth outlook for the first quarter as the domestic economy takes a hit from the global coronavirus outbreak. The bank slashed its U.S. GDP growth forecast to just 1.2% from 1.4%, seeing a more severe drag from the epidemic. That growth rate is drastically slower than the 2.1% increase in the fourth quarter and 2.3% for the full year 2019. “The risks are clearly skewed to the downside until the outbreak is contained,” Jan Hatzius, Goldman’s chief U.S. economist, said in a note on Monday. “An increasing amount of companies [are] suggesting potential production cuts should supply chain disruptions persist into Q2 or later.” The number of coronavirus cases outside China surged recently, stoking fears of a prolonged global economic slowdown from the virus spreading. Stocks suffered a steep sell-off on Monday, with the Dow dropping 800 points and erasing its gains on the year. South Korea raised its coronavirus alert to the “highest level” over the weekend, with the latest spike in numbers bringing the total infected to more than 750 – making it the country with the most cases outside mainland China. Meanwhile, outside of Asia, Italy has been the worst affected country so far, with more than 130 reported cases and three deaths. To be sure, Goldman still expects “a negligible hit” to U.S. overall activity from supply chain production disruptions because there seems to be ample inventory to power manufacturing for a while. “Lower production outside of China due to supply chain disruptions has remained negligible thus far, and that most sectors have enough inventory to continue production as normal until at least Q2,” Hatzius said. Goldman does see some of the activity lost coming back in the second quarter if the virus is contained. The firm expects second-quarter U.S. GDP to tally

Fed’s Clarida says ‘still too soon’ to speculate on coronavirus’ economic hit – Federal Reserve Vice Chairman Richard Clarida said Feb. 25 that the new coronavirus poses a risk to the global economy, but it is too early to say how it will affect U.S. growth. The U.S. economy is in a “good place,” and the Fed’s baseline outlook suggests it will remain there in 2020, Clarida said in a speech. But the Federal Open Market Committee is “closely monitoring” the spread of the coronavirus, Clarida said, saying it is likely to have a “noticeable impact” on Chinese growth in the first quarter. “The disruption there could spill over to the rest of the global economy,” Clarida said at a National Association for Business Economics conference in Washington, D.C. “But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.” Clarida’s comments are the latest instance of Fed officials acknowledging the risks posed by the spread of the virus but expressing uncertainty about its ultimate economic effects. “Although FOMC officials have not indicated a desire to cut just yet (as indicated by Vice Chair Clarida), the conversation is clearly on the table,” Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, wrote in a note to clients after Clarida’s speech. In a Q&A session after his speech, Clarida reiterated recent comments from Fed Chairman Jerome Powell that the central bank will look for any economic effects from the coronavirus that are “material or persistent.” The Fed’s benchmark interest rate, which the central bank cut three times in 2019, likely “will remain appropriate” as long as the U.S. economic outlook does not see major shifts, Clarida said in his prepared remarks. But policy is “not on a preset course,” and the Federal Open Market Committee will “proceed on a meeting-by-meeting basis” as it evaluates its next steps.

Expectations for a rate cut will fade as coronavirus fear eases, Fed’s James Bullard says –Markets expecting an interest rate cut are reacting to the coronavirus scare and likely will reverse once the fear starts to fade, St. Louis Fed President James Bullard said Friday. Central bank officials have indicated that they are content to keep policy on hold as they watch economic developments play out. However, traders in the fed funds futures market are indicating about a 54% chance of a rate cut by June and a 58% probability of a second move lower by the end of the year, according to the CME’s FedWatch tracking tool. In an interview on CNBC’s “Squawk Box,” Bullard pushed back on the likelihood of a cut, saying current policy seems right considering the pace of the record-breaking U.S. expansion. “There’s a high probability that the coronavirus will blow over as other viruses have, be a temporary shock and everything will come back. But there’s a low probability that this could get much worse,” he said. “Markets have to price that in, and that drags down the center of gravity a little bit. But if this all goes away, I expect that pricing will come back out of the market and we’ll be back to the on-hold scenario.” Bullard spoke the day after Fed Vice Chair Richard Clarida jolted markets when he told CNBC that he pays less attention to market pricing and more to economist forecasts, which don’t see the Fed cutting. The statement helped exacerbate a sell-off that came amid heightened fear that the coronavirus spread could be even worse than thought. Aside from the virus worries, Fed officials have been generally optimistic about the outlook, saying the strong U.S. labor market and signs of a pickup in global growth are indications that rates are probably appropriate.

10-year Treasury yield falls to three-year low on coronavirus fears, 30-year rate hits record low – Treasury yields tumbled on Monday as investors ran for cover amid fears the coronavirus is spreading globally and will slow the world economy. The 10-year Treasury yield hit its lowest level since July 2016. The 30-year Treasury yield hit a record low. The move into bonds came as stocks plunged with the Dow down more than 1,000 points. The yield on the benchmark 10-year Treasury note, which moves inversely to price, plunged 11 basis points to 1.3563%. The yield on the 30-year Treasury bond plummeted to 1.8142%. The 10-year yield reached an intraday all-time low of 1.325% on July 6, 2016. “Global pandemic concerns catalyzed an intuitive rotation out of risk assets and into safe havens to start the week,” Ian Lyngen, BMO’s head of U.S. rates, said in a note Monday. “The most important number in the US Treasury market has become … the all-time record low yield mark set in the aftermath of Brexit. If that level is breached, look out below.” Spiking coronavirus cases in Italy, South Korea and the Middle East sparked fears of further spread beyond China. South Korea put the country on its highest alert level on Monday as infections surpassed 760 and deaths rose to seven. Meanwhile, a seventh person in Italy has died from the virus with the number of cases surging to more than 150. As of Sunday, confirmed cases of the infection has surged to 79,400 globally and the death toll has risen to 2,621. Both the 10-year and 30-year yields are down nearly 60 basis points so far this year. Coronavirus fears, coupled with the lack of inflation, pushed bond yields to record lows once again. Investors also attributed the moves in yields to global central banks’ easing measures. Amid the escalated coronavirus fears, traders are now pricing in a better-than-even – 53% – chance of an interest rate cut at the Federal Reserve’s April meeting, according to the CME. The market also assigns a 40% of three cuts before the end of 2020.

The Entire Treasury Yield Curve Is ‘Inverted’ – The market is now demanding almost 4 rate-cuts this year – a stunning example of the desperation for monetary policy mavens to save the world through easy money… and maintain the ‘buy the dip’ strategy that a generation of money managers has become conditioned to. As former Dallas Fed’s Fisher noted yesterday:

“Does The Fed really want to have a put every time the market gets nervous? …Coming off all-time highs, does it make sense for The Fed to bail the markets out every single time… creating a trap?” “The Fed has created this dependency and there’s an entire generation of money-managers who weren’t around in ’74, ’87, the end of the ’90s, anbd even 2007-2009.. and have only seen a one-way street… of course they’re nervous.” “The question is – do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?” “the market is getting ahead of itself, because the market is dependent on Fed largesse… and we made it that way… …but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put.” But the expectations have driven Treasury yields drastically lower… Source: Bloomberg With the entire curve now below the Fed Funds target rate… Source: Bloomberg And we know “it’s different this time” but every other time this has happened, a recession was imminent…

Coronavirus fears cause mortgage rates to plunge to 8-year low – As coronavirus fears hit financial markets, U.S. bond yields are tanking, pushing mortgage rates that loosely follow the 10-year Treasury yield toward an eight-year low. They could sink even lower. The average rate on the popular 30-year fixed mortgage hit 3.34% on Monday, according to Mortgage News Daily. That is for borrowers with strong financials and credit scores. “Aggressive lenders will be at 3.25% today, and 3.375% will be the new going rate for the average lender,” said Matthew Graham, chief operating officer at Mortgage News Daily. That rate hit 3.34% for one day in the summer of 2016, before spiking much higher that fall. Before that, rates were this low in 2012. While rates generally follow the 10-year yield, there are certain market factors that keep rates above a certain level. “When rates fall this quickly, it’s not so much that big banks draw the line on mortgage rates, but rather, the underlying Mortgage Backed Securities (MBS) market refuses to improve as quickly as the Treasury market,” said Graham. “Both mortgages and Treasuries are feeling the impact of coronavirus panic. That’s pushing rates lower. But mortgages also become less valuable to investors if they get paid off too quickly.” And those payoffs, or refinances, are surging right now. Applications to refinance a home loan are up around 165% annually, according to the Mortgage Bankers Association. Mortgage applications to purchase a home have not been as strong, due to the severe shortage of homes for sale. Builders, however, may be getting a boost, especially those putting up more affordable homes.

Is Wall Street Behind the Delay in Declaring the Coronavirus Outbreak a “Pandemic”? – A little known specialized bond created in 2017 by the World Bank may hold the answer as to why U.S. and global health authorities have declined to label the global spread of the novel coronavirus a “pandemic.” Those bonds, now often referred to as “pandemic bonds,” were ostensibly intended to transfer the risk of potential pandemics in low-income nations to financial markets. Yet, in light of the growing coronavirus outbreak, the investors who purchased those products could lose millions if global health authorities were to use that label in relation to the surge in global coronavirus cases. On Tuesday, federal health officials at the Center for Disease Control and Prevention (CDC)announced that they are preparing for a “potential pandemic” of the novel coronavirus that first appeared in China late last year. Their Tuesday announcement riled markets, wiping out $1.7 trillion in stock market value in just two days. The CDC’s warninghas reportedly angered President Trump, who accused the agency of needlessly spooking financial markets. Notably, WHO officials have taken an even more cautious approach than the CDC in their recent comments, stating that it is still “too early” to declare the coronavirus outbreak a “pandemic” while also asserting that “it is time to do everything you would do in preparing for a pandemic.” The refusal to label the outbreak a pandemic is odd, since it refers to an epidemic or actively spreading disease that affects two or more regions worldwide. This currently describes the geographical spread of the highly contagious novel coronavirus, which has now resulted in significant clusters of cases far from China, namely in Italy and Iran. Countries closer to China, like South Korea, have also recently experienced an explosion in novel coronavirus infections.It is possible that concerns over using the word “pandemic” could upset global markets and lead to economic turmoil, similar to what happened to the U.S. stock market following the CDC announcement on Tuesday. Though such concerns are valid, there is also evidence that a particular class of bonds issued by the World Bank that are closely related to official declarations of pandemics may also be responsible for having steered WHO and CDC officials away from using this term, even though the consequences of doing so could negatively impact global public health.

Congress eyes $6 billion to $8 billion to combat coronavirus – Lawmakers are discussing a spending package that would provide between $6 billion to $8 billion to combat the coronavirus, a source familiar with the talks confirmed to The Hill. The zeroing in on the higher spending range comes as negotiators want to finalize a deal by early next week, which would allow for the spending package to go to the House floor for a vote shortly thereafter. Congress has approximately 10 working days before it is set to leave for a weeklong recess, giving lawmakers a tight timeframe if they are going to finalize a deal, get it passed by both chambers and get it to President Trump’s desk before leaving town. The spending levels under discussion are double to triple the initial $2.5 billion requested by the White House. That request included $1.25 billion in new funding. The rest would be taken from existing health programs, including $535 million from fighting Ebola. Senate Appropriations Committee Chairman Richard Shelby (R-Ala.) indicated on Thursday that the final figure would be “much higher” than the $2.5 billion initially requested by the White House. He also indicated that it would be more than $4 billion but that they were “not interested” in going as high as the $8.5 billion, an amount initially requested by Senate Minority Leader Charles Schumer (D-N.Y.). “We want to make sure if this stuff really spreads that we’re doing our job,” Shelby said. Shelby, House Chairwoman Nita Lowey (D-N.Y.) and their staffs have been working behind the scenes to try to get a deal on combating the disease. The source familiar with the talks added that while the range discussed was between $6 billion and $8 billion, negotiators are looking at the higher end of that range. The bill, according to Shelby, is being drafted to include a “clawback” option if the agencies ended up not needing the money, as well providing agencies with flexibility on spending the funds.

Coronavirus Spreading in U.S. Could Cause ‘Severe’ Disruption to Daily Life, Health Officials Warn – The spread of the new coronavirus, COVID-19, could cause “severe” disruption to daily life in the U.S., public health officials warned Tuesday.The warning was prompted by the spread of the new virus in countries outside its epicenter, such as Iran, Japan, South Korea and Italy, NPR reported.”It’s not so much a question of if this will happen anymore but rather more a question of exactly when this will happen and how many people in this country will have severe illness,” Dr. Nancy Messonnier, who leads theCenters for Disease Control and Prevention (CDC) division for immunization and respiratory diseases, said during a press release Tuesday.Messonnier said that people in the U.S. should prepare to provide childcare in the case of school closures, arrange to work remotely and investigate the possibilities of receiving remote medical care.”I understand this whole situation may seem overwhelming and that disruption to everyday life may be severe, but these are things that people need to start thinking about now,” she said.So far, the new disease has sickened more than 80,000 people in 37 countries and killed more than 2,600, according to The New York Times. The U.S. has seen only 57 cases to date, and 40 of them were linked to the Diamond Princess cruise ship that was the sight of an outbreak when it docked in Japan.”The immediate risk to the general American public remains low. But, as we have warned, that has the potential to change quickly,” Health and Human Services Secretary Alex Azar said during Tuesday’s press conference, according to NBC News.So far, the U.S. has responded by issuing travel restrictions and instituting the first federal quarantine in 50 years, according to NPR, but officials do not think such methods can succeed forever. “We cannot hermetically seal off the United States to a virus,” Azar told the Senate Tuesday, according to The New York Times. “And we need to be realistic about that.”

Trump says he can bring in coronavirus experts quickly. The experts say it is not that simple. WaPo. It is not easy to persuade a lot of people with specialized skills to suddenly shift to federal service to help respond to a threat, said Shahpar, who now works at Resolve to Save Lives, a global nonprofit that aims to prevent epidemics and deaths from cardiovascular disease. “They have stable jobs with retirement plans,” he said. “They are not going to quit their job at the university or quit their job in the local government to go join the U.S. federal government for six months because of coronavirus. It doesn’t work like that.”

White House Moves To Screen Scientists – As fears grow of a politicized White House response to the coronavirus outbreak, the White House has placed Vice President Mike Pence in charge of messaging about the virus, the New York Times reported Thursday.Pence, who Trump said Wednesday night would be the White House point person on the outbreak, will clear public health officials’ statements on the virus, the Times reported citing several unnamed people familiar with the matter.The White House also announced Thursday that top economic adviser Larry Kudlow, along with the surgeon general and the Treasury secretary, would join the White House Coronavirus Task Force.If the Trump administration is telling public health officials at CDC or the National Institutes of Health what they can say, the Obama administration’s Ebola czar Ronald Klain tweeted of the Times’ report, “it is a danger to public health.”Public health officials – rather than Trump loyalists like Kudlow – have been praised for speaking bluntly about the virus.For example, the director of the National Institute of Allergy and Infections Diseases, Anthony Fauci, has spoken openly about the timetables for vaccines and therapies for coronavirus. While progress has been quick according to epidemiological standards, Fauci has repeatedly been clear that a vaccine is at least 12-18 months away. Trump, meanwhile, has simply said that vaccines are on the way “rapidly.” Fauci has told associates that he’d been instructed by the White House not to say anything else without clearance, the Times reported Thursday.Trump on Wednesday admitted his concern that the public’s perception of the virus was hurting markets; reports indicated he was furious about the stock market’s dive.

White House Reportedly Ordered Infectious Disease Chief ‘Not to Say Anything’ About Coronavirus Without Clearance –The New York Times is reporting that Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has told associates that he has received directions from the White House “not to say anything else without clearance” about the potential coronavirus pandemic. Writing for the Times, Michael Scherer and Maggie Haberman report about recent efforts by the Trump administration to “tighten control of coronavirus messaging by government health officials and scientists, directing them to clear all statements and public appearance with the office of Vice President Mike Pence,according to several officials familiar with the new approach.”In a Wednesday evening press conference, President Donald Trump announced that Vice President Pence would be leading federal efforts to contain – and to and inform an increasingly concerned public about – a coronavirus outbreak which is looking more and more like a pandemic every day. Perhaps most troubling in the NY Times reporting, however, is news that “one of the country’s leading experts on viruses” has been effectively muzzled by a White House that appears to be putting a higher priority on an effective political narrative than a better-informed public. To wit: Dr. Anthony S. Fauci, one of the country’s leading experts on viruses and the director of the National Institute of Allergy and Infections Diseases, told associates that the White House had instructed him not to say anything else without clearance. The new White House approach came as the Centers for Disease Control and Prevention acknowledged Thursday that a California woman with coronavirus was made to wait days before she was tested for the disease because of the agency’s restrictive criteria about who may get tested. During a Thursday morning appearance, Haberman spoke about the Trump administration’s credibility problem to an audience of CNN New Day viewers. Haberman flatly noted the “sheer volume of things not true said by this president and some of his aides does not inspire credibility,” before explaining that this is “why they are being questioned on it at a time when they need it.”

How the coronavirus crisis could lead to four more years of Trump – South China Morning Post – It’s the economy, stupid. That was the message at the heart of Bill Clinton’s successful campaign for US president in 1992. The economy will again loom large in the 2020 race for the White House but it’s just possible that the incumbent, Donald Trump, will get a helping hand from a very unlikely source: the coronavirus disease, Covid-19. Taking the data at face value, the US economy is doing pretty well. Trump has been understandably quick to claim credit for that, as any US president would. It might therefore be logical to assume that Trump’s re-election prospects would suffer if the spread of Covid-19 were to have such an impact on the global economy that it began to negatively affect US economic data, or if a coronavirus-related dent in American corporate earnings weighed on lofty US equity prices. But that might be to draw the wrong conclusion. Minutes of the Federal Reserve’s January 28-29 meeting revealed that participants “generally saw the distribution of risks to the outlook for [US] economic activity as somewhat more favourable than at the previous meeting”, while acknowledging that the threat of the coronavirus “warranted close watching”. Indeed, as the Fed’s vice-chairman Richard Clarida told CNBC last Thursday: “The fundamentals in the US are strong: sustained growth, strongest labour market in 50 years, price stability with inflation close to our goal. It’s a good picture.” But if the spread of coronavirus starts to darken this “good picture”, then the Fed would have to disengage the autopilot. It would surely act to ease US monetary policy in an attempt to support the economy, just as central banks across Asia are already acting in the face of Covid-19. While a strong US economy could yet falter in the face of the coronavirus and Trump’s re-election campaign could lose momentum, even his bitterest political enemies would struggle to lay the blame for Covid-19 at his door. Yet, such an economic stumble could elicit a policy response from the Fed that would play well in the White House.

US Claims Russia Spreading Disinfo Blaming America For Coronavirus Outbreak – US officials are claiming that thousands of ‘Russian-linked’ social media accounts have launched a coordinated effort to promote disinformation about coronavirus – including a theory that the US is behind the outbreak, according to The Guardian, which calls it an “apparent bid to damage America’s image around the world.” The accounts in question have popped up on Facebook, Twitter and Instagram, according to State department officials – with some of the suspected bad actors claiming that the United States is waging “economic war on China,” and that the virus is a CIA-manufactured biological weapon.Several thousand online accounts – previously identified for airing Russian-backed messages on major events such as the war in Syria, the Yellow Vest protests in France and Chile’s mass demonstrations – are posting “near identical” messages about the coronavirus, according to a report prepared for the state department’s Global Engagement Center and seen by the AFP.The accounts are run by humans, not bots, and post at similar times in English, Spanish, Italian, German and French. They can be linked back to Russian proxies, or carry messages similar to Russian-backed outlets such as RT and Sputnik, the report said.“In this case, we were able to see their full disinformation ecosystem in effect, including state TV, proxy websites and thousands of false social media personas all pushing the same themes,” said Lea Gabrielle, the head of the Global Engagement Center, which is tasked with tracking and exposing propaganda and disinformation. –The Guardian “Russia’s intent is to sow discord and undermine US institutions and alliances from within, including through covert and coercive malign influence campaigns,” said Philip Reeker, acting assistant secretary of state for Europe and Eurasia.”By spreading disinformation about coronavirus, Russian malign actors are once again choosing to threaten public safety by distracting from the global health response,” Reeker added.We would note that The Guardian, nor their sources, have provided any direct evidence of these claims.

U.S. Car Industry Most Reliant On Chinese Parts – As the COVID-19 crisis drags on, the epidemic’s economic impact is starting to be felt around the world. Due to China’s role in the global economy, the prolonged standstill in the country has the potential to disrupt supply chains for several key industries, including electronics, chemicals and automobiles. Considering that Wuhan, the outbreak’s epicenter, is often referred to as “China’s Motor City”, Statista’s Felix Richter notes that the automotive sector is among the industries most exposed to the negative impact of the virus. Not only will Chinese production suffer a significant hit due to extended shutdowns, but many manufacturers around the world who rely on Chinese parts are facing production outages.“It only takes one missing part to stop a line,” Mike Dunne, an industry consultant formerly heading GM’s operations in Indonesia, told CNN.Last week, Fiat Chrysler Automobiles (FCA) said it would be temporarily halting production at a plant in Kragujevac, Serbia due to a lack of parts from China, while Hyundai and Renault have done the same in South Korea.China is among the world’s largest suppliers of car parts, exporting motor vehicle parts and accessories worth $34.8 billion in 2018, according to the UN’s Comtrade database. As the following chart shows, the U.S. car industry is theoretically most at risk of production outages as it relies heavily on parts sourced from China. It remains to be seen how significant the impact of the epidemic on the global car industry will be, as it depends on how quickly the flow of components from Chinese suppliers can return to the required level. While automakers are gradually reopening factories across the country, those plants located in and around Wuhan remain closed for the time being.

Coronavirus and the O&G industry The coronavirus outbreak seems to be moving towards containment in China, but the epidemic is gaining steam worldwide and it could be a matter of time before it becomes a pandemic. Although the fatality rate of the virus is smaller than the flu, its unknown nature is driving uncertainty and fear in markets across the globe. And the oil and gas industry isn’t immune to this.Whether Covid-19 has and will continue to slash crude oil and gas demand, or whether sentiment is pushing commodities prices to historic lows, you need to be in the know. Here’s our latest coverage:

• Upstream’s biggest coronavirus fear is prices, not project delays. The greatest impact of the outbreak is expected on oil prices, and consequently, companies’ cash flow and dividends. So far, the threat from potential project delays is “a mere scratch on the surface of global supply,” said Wood Mackenzie.
• Crude falls for 5th day on demand concerns. Crude oil prices fell for a fifth straight trading day last Thursday, to their lowest point in 13 months, as a growing number of new coronavirus cases outside China fueled fears of a pandemic, which could slow the global economy and lower crude demand. Brent crude was down $1.47, or 2.8%, at $51.96 per barrel, while WTI fell $1.35, or 2.7%, to trade at $47.38/Bbl.
• Coronavirus outside China obstructs oil market recovery. Signs of worsening outbreaks in South Korea, Italy and Iran are getting in the way of recovery. “These are not small demand markets and, together with China, nearly one in five global demand barrels is located in countries facing public health emergencies,” said IHS Markit.
• Chevron’s London employees continue working from home. The oil major asked staff in its Canary Wharf offices to work remotely to reduce exposure to the virus, after one employee showed flu-like symptoms. Italy’s Saipem has also minimized staff in offices and operations, particularly in northern Italy, where the virus is growing.
• Coronavirus will meaningfully impact oil demand growth. Dallas Fed economists believe the coronavirus presents a serious risk to demand growth globally, as China consumes 14% of total global oil demand. As a consequence, U.S. crude oil output growth is expected to decline to roughly 0.4 Mmbpd in 2020. This is also heavily influenced by dramatic pressure for capital discipline.
• Consumers unlikely to feel benefit of lower oil prices: IEA. Covid-19 is set to affect 435,000 Bpd of crude demand in the first quarter, compared to the same period last year, the IEA forecast. This will be the first quarterly contraction in more than a decade. For 2020, the loss is estimated at 365,000 Bpd, dropping demand growth to 825,000 Bpd – the lowest level since 2011.
• Chinese oil demand to fall by 200,000 Bpd in H1: Opec. The estimated loss will result in a 400,000 Bpd retraction in demand globally, the group said.
• Global LNG markets’ struggles intensify with coronavirus. The outbreak couldn’t have happened at a worse time for the global LNG market, amid weak demand due to a mild winter and a supply glut. Spot prices are at historically low levels of roughly $3.15/MmBtu, while long-term contract prices are around $8.33/MmBtu.
• Coronavirus slashes global oil demand growth: Rystad. The estimate is a plunge of 25%, to 820,000 Bpd, due to the virus and its travel-related restrictions. In a worst case scenario, Rystad forecast growth could be slashed to 650,000 Bpd in 2020.

No Financing And No Demand- Chinese Refiners Run Into Trouble -International banks are suspending credit lines for some independent oil refiners worried about the growing risk of defaults across industries because of the coronavirus epidemic, Reuters reports, citing industry sources. According to the sources, at least three private refiners, or teapots, have had credit lines to the tune of $600 million suspended by banks including French Natixis, Dutch ING, and Singapore DBS Group Holdings.“All our applications for new open-account credits are frozen … these clean credits are pivotal as we buy 6 to 8 million barrels of oil each month,” one source told Reuters.Refiners, both private and state, have already reduced their run rates in response to the slump in fuel demand resulting from the outbreak, and now they have deepened these cuts, Bloomberg reported last week.The average as of last Thursday was about 10 million bpd, down by 25 percent on the same time last year, when the average run rates were at a record high of close to 13 million bpd. Analysts expect the low run rates to continue at least until the end of this month, but if it spills into March, some refiners – notably independent refiners – will start experiencing a lack of storage space, too, after earlier this month they took advantage of low prices to stock up on crude.Now, on top of that, the teapots that have accounted for a large portion of China’s increased thirst for oil that was instrumental in oil price recovery after the crisis, are having financing trouble.“We were told by our banks that so long as the open-account credits are for oil heading to Shandong, it will be very hard chance winning approvals,” another Reuters source said.The three refiners refused credit line extensions have combined oil import quotas of about 240,000 bpd, R euters reports. If more banks become wary of defaults among refiners, this could hit imports over a longer term.

Shipping lines face troubled waters as oil tankers, container carriers and cruise lines stop calling on China for fear of catching the coronavirus –Port calls to China are becoming less frequent, as fear of catching the coronavirus and a slowdown in the Chinese economy have deterred cruise liners, container ships, oil tankers and bulk carriers alike from stopping at the country’s harbours.Commercial vessels have stopped arriving, with port calls falling by an estimated 30 per cent in February, and container throughput estimated to decline by between 20 and 30 per cent, according to Clarksons – a shipping research company. The coronavirus outbreak, which has sickened more than 75,000 around the world and killed more than 2,400, is adding to the woes of an industry that is already suffering from the US-China trade war. As many as 600 of the 3,700 passengers on the cruise ship Diamond Princess – moored in Yokohama outside Tokyo – contracted the virus while in close proximity to one another, which further deterred vessels from calling on mainland China, where more than 99 per cent of confirmed afflictions and deaths are. As China’s labour force returns to work in phases after an extended Lunar New Year holiday imposed by the government in an effort to contain the epidemic, shipyards are slowly ramping up construction.Still, vessel owners expect delivery to be delayed. Nine of the 19 Chinese shipyards surveyed by Clarksons put their yards on complete suspension on February 14, with none at full production.“We foresee the delay to be between one to two months, depending on the capability and resilience of different shipyards,” said Zhou Jian-Feng, managing director of Wah Kwong Maritime Transport Holdings, which has two ships under construction at Chinese shipyards, and has several other projects underway.

China’s top container ports unclog backlog as virus curbs ease – (Reuters) – China’s top container ports are loosening the backlog of cargoes on their docks as workers return to their jobs after coronavirus travel curbs that kept them away and jammed up global supply chains have been eased. The flu-like epidemic, which originated in the city of Wuhan, an inland logistics hub in Hubei province, has killed more that 2,700 and infected over 78,000 in China alone, and caused massive port congestion due to labor shortages caused by city lockdowns across the country. China is the largest container cargo handler – processing around 30% of global traffic or around 715,000 containers a day in 2019 – and the virus clampdown impacted supply chains of everything from sneakers and machine parts to technology components and food items. Executives from U.S. poultry processor Sanderson Farms Inc (SAFM.O) said on an earnings call on Thursday that operations at China’s ports were slowly getting back to normal and most of its shipments have been delivered. The company has shipped or received orders from Chinese buyers for about 18 million pounds of chicken products since Beijing lifted a ban on imports of U.S. poultry late last year. The average wait time for container vessels at Zhoushan (601018.SS) in southern China – the third-largest container port in the world by annual handling capacity – spiked to more than 60 hours in the week of Feb. 11-17, when travel curbs on workers returning from the prolonged Lunar New Year holiday forced ports to operate with skeleton staffing.

Oil Trader Collapse Sparks Alarm Over China’s Private Refiners– The collapse of an oil trader linked to one of China’s independent refiners is ratcheting up concern over the financial stability of a sector that accounts for about a quarter of the nation’s crude processing capacity. Hontop Energy, which purchases oil on behalf of private refiner Shandong Tianhong Chemical Co., went into receivership in February, according to documents filed with Singapore’s accounting regulator. Its demise brings focus onto the financial health of many of China’s private refiners, known as teapots, which have built up massive debt loads to modernize infrastructure and procure crude on a global scale. Hontop’s fall is reverberating across the world of oil trading as many Western merchants and oil companies like Trafigura Group and BP Plc have built teams over the last five years that are dedicated to supplying teapots. And as the coronavirus epidemic threatens profit margins and coincides with a broader credit crunch in China, traders and bankers are increasingly wary about their exposure to the refiners. “Many of the teapots are already on a credit redflag list of banks in Singapore,” Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies said. “The virus has certainly tightened cash-flows and exacerbated banks’ concerns.” While traders don’t expect the financial problems of teapots to have much of an impact on China’s overall crude demand, they say it will likely result in widespread delays and isolated cases of distressed cargoes as buyers and sellers reassess relationships. Both Hontop and Shandong Tianhong are units of Chinese conglomerate China Wanda Group, which itself has been struggling to juggle its debt load. Repeated attempts to get comment from Hontop and Wanda were unsuccessful.

Coronavirus flight cancellations top 200,000, sending jet fuel prices to more than 2-year lows – Airlines have canceled more than 200,000 flights as the coronavirus continues to spread, prompting travel restrictions and a sharp drop in demand for trips to and within China. More than 76,700 people have been sickened by the virus, which has killed at least 2,249 people, health officials said. Close to 98% of the reported cases are in China but some officials are worried about a crop of new infections elsewhere, including Iran and South Korea. Airlines around the world, including the three U.S. carriers that serve China – Delta, United and American – have halted service to the mainland and Hong Kong because of the virus. In February alone, the number of flights that were scheduled to fly to, from and within China are down 80% from a year ago, according to aviation consulting firm Cirium. From Jan. 23 to Feb. 18, 99,254 scheduled flights didn’t fly, close to 90% of them domestic China trips, the firm added. That’s sending jet fuel prices, generally airlines’ second-biggest expense after labor, down sharply. While benchmark jet fuel prices in the U.S. and Singapore have recovered some ground from hitting the lowest levels since mid-2017, they’re each down 17% so far this year, according to data from S&P Global Platts. “Pent-up demand” may help firm up prices in the second half of the year but “2020 is compromised as far as jet [fuel] demand is concerned,” said S&P Global Platts energy analyst Claudio Galimberti. Normally, lower costs would be welcome news for airlines, but weaker demand is expected to hit revenue and profits this year. The Asia-Pacific air travel market has become more important since the SARS outbreak that began in 2002. The region accounted for 35% of global demand last year, up from 27% in 2002, the trade group said. China is expected to overtake the U.S. as the world’s largest air travel market by the middle of this decade. Air travel demand globally is set to fall for the first time since 2009 and cost airlines some $29 billion – mostly in the Asia-Pacific region – in revenue, the International Air Transport Association said Thursday.

3 Energy Sectors Most Threatened by the Coronavirus – At a time when the energy sector is weighed down by debt and reeling from low commodity prices, American energy producers are now bracing for the biggest demand shock to hit the markets in decades: the effects of the coronavirus outbreak in China and beyond. While the outbreak may not sweep the globe as swine flu did in 2009, the fear of a global epidemic managed to shave 975 points off the Dow Monday morning, and experts seem to agree that the economic effects of the fallout are likely to be more severe.Here are the three energy sectors that are likely to be hardest hit by the coronavirus epidemic, and why:

• #1 Oil, Grounded by Demand. Oil and natural gas prices have remained low for the past year and could remain that way with the biggest oil importer now grounded.China, the world’s top oil importer, bought 41.24 million tonnes of crude in 2019, equivalent to 10.04 million barrels per day (bpd). But just two months after the outbreak of the virus, Chinese oil demand is down sharply because of dwindling air travel, road transportation and manufacturing.China consumes 13 of every 100 barrels of oil that the world produces, and global oil companies are likely to feel the heat to some extent. Bloomberg has reported that Chinese oil demand hasdropped by about 3 million barrels a day, or ~20% of total consumption.The d rop marks the largest demand shock in the market since the global financial crisis that ended in 2009. It’s also the most sudden shock the market has suffered since the Sept. 11 attacks nearly two decades ago.
• #2 Natural Gas, Already A Wreck. Natural gas prices recently tumbled to historical lows and are down nearly 15% since the start of 2020 with excess supply and inventory build up pressuring prices. The coronavirus outbreak is not helping the situation, either. The global LNG leader Royal Dutch Shell has warned that the coronavirus outbreak is alreadyhurting LNG demand and forcing it to reroute supplies previously earmarked for mainland China.And the situation might not improve any time soon. Last year, RBC predicted that natural gasprices might take years to fully recover.
• #3 Battery and Energy Storage.Last week, Utility Dive – which covers news and trends in the utility industry – warned that the coronavirus epidemic “… is going to be a very big deal” with respect to Chinese manufacturing. Eight provinces in the country have already announced work stoppages as a result of the outbreak, which has negatively impacted multiple solar manufacturing campuses. This is highly significant considering that most of the world’s solar panels are made in China.China also happens to be home to most of the world’s lithium-ion battery manufacturing. Utility Dive has warned that the country’s battery storage production capacity could contract by 10% – or 26 GWh – compared to earlier forecasts.

Top China steelmakers Baowu, Shagang see Q1 output down due to virus outbreak –(Reuters) – China’s biggest steel producer, China Baowu Steel Group, expects output to fall 5% in the first quarter of 2020 due to coronavirus disruptions, a company official said on Saturday. The steel giant, which churned out 96 million tonnes of crude steel in 2019, sees its first-quarter output down by 1 million tonnes from the same period last year, Zhang Jingang, vice general manager of the group, told an industry news conference held by the China Iron and Steel Industry Association (CISA). Baowu said its steel units are mostly operating normally, including Wuhan Iron and Steel Co, which needs to provide oxygen to local hospitals and guarantee household utilities. Wuhan, in central China, is the epicentre of the outbreak that has killed over 2,000 people and caused widespread economic disruptions.

Coronavirus is double shock for China’s giant aluminium sector – (Reuters) – The outbreak of the deadly coronavirus could not have come at a worse time for the aluminium market. A worker checks aluminium rolls at a warehouse inside an industrial park in Binzhou, Shandong province, China April 7, 2018. China Daily via REUTERS Global aluminium demand fell last year for the first time since the global financial crisis. Expectations of a demand recovery rested on China, which showed encouraging signs of a manufacturing revival towards the end of 2019. The virus and the accompanying quarantine measures have since chilled economic activity, representing a short-term demand shock for the world’s aluminium market. It’s why the London Metal Exchange (LME) aluminium price sank to a three-year low of $1,685 per tonne at the start of February. The fear is that China’s aluminium smelters will keep churning out metal even as the country’s demand implodes. Since China is the world’s largest producer of primary aluminium, accounting for 56% of global output last year, this could have huge ramifications. At the same time, China’s complex production logistics chain is undergoing massive stress and a supply shock is building upstream. DEMAND SHOCK Aluminium usage is highly exposed to the construction and transport sectors, meaning a double short-term hit to end-use demand. Chinese construction activity is being hampered by quarantine restrictions on workers returning from Lunar New Year holidays. Already weak automotive sales look set to collapse over the coming months. Passenger car sales slumped by 92% in the first half of February, according to the China Passenger Car Association. The more immediate concern is China’s aluminium processing sector, which converts metal into semi-manufactured products. Most fabricators tend to close their plants or at least run at reduced rates over the holidays. Many are yet to restart, being in locked-down quarantine zones.

It Begins- Chinese Business Conditions Crash Most On Record – For the past two weeks, even as the market took delight in China’s doctored and fabricated numbers showing the coronavirus spread was “slowing”, we warned again and again that not only was this not the case (which was confirmed by the latest data out of South Korea, Japan and now Italy), but that for all its assertions to the contrary, China’s workers simply refused to go back to work (even with FoxConn offering its workers extra bonuses just to return to the factory) and as a result the domestic economy had ground to a halt, something we described previously in:

• China Has Ground To A Halt: “On The Ground” Indicators Confirm Worst-Case Scenario
• China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero
• Terrifying Charts Show China’s Economy Remains Completely Paralyzed

Unfortunately, one month after the start of the Lunar New Year it’s not getting any better, as the latest high frequency updates out of China, courtesy of Goldman Sachs, demonstrate. First, here is China’s daily coal consumption which have barely pushed off the lows, and are roughly 50% where they were a year ago this time.With coal demand in the doldrums, it is also to be expected that coal supply is depressed as well, and indeed coal volumes over the past week remain 25% lower than the past 3 years’ average, and roughly 33% below the 2019 level. One of the better indicators of real-time commerce, traffic congestion, remains virtually unchanged, and substantially below where it was in previous years. Yet, hilariously, this being China even with no transport, no commerce, and virtually no power plant use, pollution is finally starting to ramp up. One wonders what is causing this if it’s not coal demand, or transportation: maybe all those crematoriums working overtime?

Virus hits China’s economic heart — its small businesses. Over 85% expect to run out of cash within three months— When Danny Lau reopened his aluminum facade panel factory in China’s southern city of Dongguan last week, after an extended Lunar New Year break, less than a third of its roughly 200 migrant workers showed up. Most of his workers hail from central-western China, including 11 from Hubei Province, the epicenter of the coronavirus outbreak that has killed more than 2,000 people. Many said they had been banned from leaving their villages as authorities race to contain the epidemic. Lau’s business had already been hurt by the 25% tariff on aluminum products the U.S. imposed in its tit-for-tat trade war with China. Now he worries the production constraints will give American customers another reason to cancel orders and switch to Southeast Asian suppliers. This same double blow is hitting small and midsize enterprises across China, prompting a growing chorus of calls for the government to step in and offer lifelines. The stakes could not be higher: These smaller employers account for 99.8% of registered companies in China and employ 79.4% of workers, according to the latest official statistics. They contribute more than 60% of gross domestic product and, for the government, more than 50% of tax revenue. Companies like Lau’s that have resumed some production are the lucky ones. Many factories and other businesses remain completely stalled due to the virus. Some owners can do little but pray that things return to normal before they careen off a financial cliff. Eighty-five percent of 1,506 SMEs surveyed in early February expect to run out of cash within three months, according to a report by Tsinghua University and Peking University. One-third of the respondents said the outbreak is likely to cut into their full-year revenue by more than 50%. “Most SMEs in China rely on operating revenue and they have fewer sources for funding” than large companies and state-owned enterprises, said Zhu Wuxiang, a professor at Tsinghua University’s School of Economics and Management and a lead author of the report. Employers need to pay landlords, workers, suppliers and creditors — regardless of whether they can regain full production capacity anytime soon. “The longer the epidemic lasts, the larger the cash gap drain will be,” Zhu said, adding that companies affected by the trade war face a greater danger of bankruptcy because many are already heavily indebted. “Self-rescue will not be enough. The government will need to lend help.”

China’s central bank to ensure ample liquidity through targeted RRR cuts – (Reuters) – China’s central bank said on Thursday that it will ensure ample liquidity through targeted reserve requirement ratio (RRR) cuts in appropriate time.The People’s Bank of China (PBOC) will as far as possible reduce the impact of the coronavirus epidemic to help achieve economic goals for this year, PBOC vice governor Liu Guoqiang said at a presser in Beijing. Liu also said that China will keep the macro leverage ratio and prices stable.

China Mobile Phone Sales Crash Most On Record – China’s mobile phone industry cratered in January as shipments plunged by more than a third, according to a new report from China Academy of Information and Communications Technology (CAICT). China shuttered dozens of cities, closed major manufacturing hubs, shutdown retail stores, and placed more than 700 million people in lockdown for virus containment purposes, creating one of the most massive demand shock the country has ever seen, resulting in the bust of the mobile phone industry in January. CAICT reported domestic mobile phone shipments were around 20.8 million units, down 38.9% year-over-year. The report noted mobile phone shipments by local brands reached about 18.3 million units, down 42.9% year-over-year, which accounted for 88% of the domestic mobile phone shipments. It also noted, smartphone shipments were 20.4 million units for the month, down 36.6% year-over-year, which accounted for nearly 98% of all domestic mobile phone shipments in the month. We’ve cited several estimates in the last several weeks that made it entirely clear that China’s economic paralysis would lead to a full meltdown of its tech industries. The first hint was Qualcomm earlier this month, warned the virus outbreak would disrupt the mobile and smartphone industry. On a quarterly view, research firm Canalys suggested China’s smartphone sales could plunge upwards of 50% for 1Q, as retail phone stores and production of semiconductors/smartphones remain closed. “Vendors’ planned product launches will be canceled or delayed, given that large public events are not allowed in China,” Canalys said. International Data Corporation (IDC) estimated that shipments over the quarter could tumble by 30%. TrendForce slashed its 1Q global smartphone production forecast by 12% Y/Y, due to factory closings across Greater China. It warned global smartphone production in 1Q would be around 275 million units, a 5-year low in production.

China auto sales plummet as coronavirus threatens to trigger global downturn – Car sales in China, the world’s largest automobile market, plunged 92 percent in the first two weeks of February compared to a year earlier. The fall was driven largely by the impact of the novel coronavirus, which continues to cause widespread disruption to economic activity and daily life both in China and a growing number of countries. In China, a country of nearly 1.4 billion people, average sales dropped to a staggeringly low 811 vehicles a day in the first week of February, according to a report by the China Passenger Car Association. “The market is dead. There is no one buying cars,” Dalibor Petkovic, a China auto analyst, bluntly told the Financial Times. “We can’t expect an upsurge in sales for a while.” Stock markets internationally have fallen sharply over the last two days, as revised projections for the further global spread of the novel coronavirus have led to fears that the disease is increasingly likely to tip the already fragile world economy into a major recession. The US Dow Jones Industrial Average experienced its biggest two-day point decline in history since Monday, with other indexes in Asia and Europe seeing even bigger percentage declines. With a global jobs massacre already well underway, with over 500,000 auto-industry jobs cut in 2019 and at least 100,000 more projected for 2020, the international working class is being forced to shoulder the costs of the economic crisis. The areas of China most significantly impacted by the coronavirus, centered on the city of Wuhan (dubbed China’s “Motor City”) and the Hubei province, are also those which account for a substantial portion of both auto production and sales in the country. The Financial Times cited an analysis by LMC Automotive, which indicate that the regions with more than 500 cases of the coronavirus are responsible for 61 percent of passenger car sales and 54 percent of production. GM, Honda, Nissan, Renault, and the PSA Group all have auto plants within Wuhan. Hubei has announced it will continue its shutdown of non-essential business through March 11. Dealerships in the country expect sales to be down by as much as 80 percent for the month, according to a report by the China Automotive Dealership Association. Although roughly 20 percent of dealerships have showrooms open, sales are only at approximately five percent of their typical level. Both automakers and the Chinese state view the slump in sales with increasing nervousness, but have yet to undertake significant measures in response. Geely, one of China’s top automakers, recently launched an online buying service in an effort to make up for the drop in in-person purchases at dealerships. The Chinese government has signaled it will take as-yet undefined steps to offset the impact of the outbreak on the auto industry, with the commerce ministry stating last week that it would work to stabilize sales. Bloomberg News cited an unnamed source who indicated the government is considering reintroducing subsidies for electric vehicles.

China Reports Catastrophic Data- PMIs Crash To Record Low, Confirming Coronavirus Collapse — One week ago, ahead of today’s Chinese data release which would for the first time capture the devastation from the coronavirus pandemic, we wrote that “to those who have been following our series of high-frequency, daily indicators of China’s economy, it will probably not come as a surprise that the world’s second biggest economy has ground to a halt, its GDP set to post the first negative print in modern history. To everyone else who is just now catching up, we have some news: it’s going to be bad.”Specifically, we said that ahead of official Chinese economic data which will soon start capturing the period when the coronavirus crippled the country’s economy, Nomura’s Chief China economist Ting Lu pointed out that China’s Emerging Industries PMI (EPMI), which gauges momentum in the country’s high-tech industries and is closely correlated with official manufacturing PMI, slumped to 29.9 in February (from 50.1 in January!), its lowest-print on record, which was a “pure reflection of the devastating impact of the COVID-19 outbreak.“What would this mean for the closely followed China manufacturing PMI? As Nomura added, “even adjusting for seasonality and expected progress in business resumption in the coming week, we estimate the official manufacturing PMI could drop to a range of 30-40 in Feb.”In retrospect, it turns out that Nomura’s dire forecast was optimistic, because moments ago China’s National Statistics Bureau reported the latest, February PMIs and they were absolutely catastrophic:

• Manufacturing PMI crashed to 35.7 in Feb, far below the 45.0 consensus estimate, and sharply down from 50.0 in January. A record low.
• Non-Manufacturing PMI plummets to 28.9, also far below the 50.5 consensus, estimate, and down nearly 50% from the 54.1 in Jan. This too was a record low.

Japan Urges Telecommuting, Staggered Shifts To Curb Coronavirus (Reuters) – Japan urged businesses on Tuesday to have staff work from home to help prevent the spread of the coronavirus, and its top-flight soccer division announced it was postponing matches, just months before the country is due to host the Summer Olympics. A new government strategy for fighting the disease, unveiled at a cabinet meeting on Tuesday, urged companies to recommend telecommuting for workers and stagger their shifts. People with symptoms of cold or fever were advised to stay at home, and event organizers told to consider whether to proceed with plans. Japan has 160 cases of infections from the disease known as COVID-19, as well as 691 discovered on board the Diamond Princess cruise ship docked south of Tokyo. On Tuesday, broadcaster NHK reported a fourth death among passengers. Japan has been preparing for years to host the Olympics, which begin in Tokyo in July. Its top flight soccer J.League said it had postponed seven cup matches scheduled for Wednesday and was considering postponing all domestic soccer through the first half of March. .. (Reuters) – A woman working as a tour-bus guide in Japan has tested positive for the coronavirus for a second time, Osaka’s prefectural government said, the first known person in the country to do so amid growing concerns about the spread of the infection. The second positive test comes as the number of confirmed cases in Japan rose to 186 by Thursday from around 170 the day before. Tokyo has urged big gatherings and sports events be scrapped or curtailed for two weeks to contain the virus while pledging the 2020 Olympic Games will still go ahead in the city. The 186 cases reported by Japan’s health ministry are separate from 704 reported from an outbreak on the Diamond Princess cruise liner that was quarantined off Tokyo earlier this month. A total of seven people have died, including four from the ship. Though a first known case for Japan, second positive tests have been reported in China, where the disease originated late last year. The outbreak has spread rapidly and widely, infecting about 80,000 people globally and killing nearly 2,800, the vast majority in mainland China. The woman, a resident of Osaka, in western Japan, tested positive on Wednesday after developing a sore throat and chest pains, the prefectural government said in a statement, describing her as being in her forties. She first tested positive in late January and was discharged from hospital after recovering on Feb. 1, according to the statement.

As coronavirus looms over Olympics, Japan PM urges two-week curbs on sports events(Reuters) – Japanese Prime Minister Shinzo Abe called on Wednesday for sports and cultural events to be scrapped or curtailed for two weeks, as two more coronavirus deaths heightened concerns the contagion might scupper the summer Tokyo Olympics. Abe’s call came as Tokyo’s baseball league said it would hold games without spectators until March 15. Two businesses in central Tokyo confirmed infections a day after the government told firms to get staff to work from home or stagger commutes. An 80-year-old man who had not traveled overseas and had no known contact with an infected person died in a Tokyo hospital, media reported, while the northern island of Hokkaido – the region most affected after Tokyo, reported a death, taking Japan’s total to six, including four from a cruise liner. Hokkaido will close some schools from Thursday through March 4. “Taking into account that the next one to two weeks are extremely important in stopping the spread of infection, the government considers there to be a large risk of transmission at sports, cultural events and large gatherings of people,” Abe said in parliament. By mid-afternoon on Wednesday, Japan had close to 170 cases of infections from the flu-like virus, separate from the 691 reported from a cruise ship quarantined off Tokyo this month.

PM Abe asks all of Japan schools to close over coronavirus – (Reuters) – Japan’s entire school system, from elementary to high schools, will be asked to close from Monday until spring break late in March to help contain the coronavirus outbreak, Prime Minister Shinzo Abe said on Thursday. The dramatic escalation of Japan’s fight against the virus follows rising criticism of what has been seen as a lukewarm government response. “This coming week or two are an extremely important period,” Abe told a coronavirus task force. “Prioritizing children’s’ health and safety above everything else, we will ask all the elementary, junior high and high schools across Japan to temporarily close from March 2 to spring break.” The Japanese school year ends in March, with spring vacation usually starting the last week of the month. A woman working as a tour bus guide was reinfected with the coronavirus, testing positive after having recovered from an earlier infection, Osaka’s prefectural government said. Her case, the first known of in Japan, highlighted how much is still unknown about the virus even as concerns grow about its global spread. The number of cases in Japan rose on Thursday to more than 200, up from the official tally of 186 late on Wednesday. On the main northern island of Hokkaido, 15 new cases, including two children under the age of 10, were confirmed. The government has urged that big gatherings and sports events be scrapped or curtailed for two weeks to contain the virus while pledging that the 2020 Summer Olympics will go ahead in Tokyo. But its handling of the virus has drawn increasing criticism, including from opposition politicians.

World Economy Shudders as Coronavirus Threatens Global Supply Chains WSJ – Manufacturers’ increased reliance on more interconnected China sees shortages ripple around the globe – The last time a coronavirus outbreak hit China in 2003, the global economy emerged relatively unscathed. Now, nearly two decades later, the growth-damping effects of a similar pathogen threaten to ripple around a world transformed by China’s boom. Chinese consumption and production power growth from Asia to North America, Europe and beyond. Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods.

Supply Chain Disruptions Impact On Global Growth- $570 Billion & Growing – In a previous post, we mentioned that stagflation is a risk that central planners are ignoring. However, this risk is not just an isolated challenge focused on economies like Mexico, India or Argentina. Even in countries like Germany and Japan the trend of inflation, particularly in non-replicable goods, is diverging from economic growth. Inflation is picking up, while growth is slowing down. Central banks continue to pump liquidity to disguise the rising risks to the global economy, but the coronavirus epidemic is showing to investors three important lessons:

1. Containment of the epidemic is taking significantly more time than what many market participants estimated. Calls fro a rapid recovery that would not only offset the first-quarter impact but improve it, are disproved.
2. The impact on supply chains is significantly larger than most analysts expected. China is now 17% of the global economy and provinces that count for 89% of the country’s exports remain in lockdown.
3. Global excess capacity is a mitigating factor on rising inflation only for replicable and highly competitive goods. There is clearly ample capacity to offset supply chain disruptions in energy commodities, metals, and industrial goods but there are severe problems surfacing in sectors that are very dependent on Chinese supply, particularly auto parts and technology components.

Market participants started to realize last week that the coronavirus effect was not going to be a two-month issue that would be followed by strong growth. In a recent PriceWaterhouse Coopers report, it showed that the global impact could reach at least 0.7% of GDP. This estimate uses Eric Toner´s infected and casualty estimates (John Hopkins Center for Health Security) and the economic impact using McKibbins & Lee methodology (the ones that estimated the SARS impact).The key factor in this supply chain disruption risk is that while headline inflation may remain weak due to falling commodity prices, the prices of essential goods may continue to rise faster than official inflation and generate more unrest among citizens all over the world

Disruption Escalates: Proctor And Gamble Says Over 17,000 Products Potentially Impacted By Coronavirus -While mom and dad on Main St. still aren’t getting the dire warning that the coronavirus has been offering up to Asia and the rest of the Eastern world over the last several weeks, perhaps a lightbulb will finally go off when Jane Q. Public heads to the grocery store and is unable to buy shampoo and toothpaste. Proctor and Gamble, one of the world’s biggest “everyday product” manufacturers, has now officially warned that 17,600 of its products could be affected and disrupted by the coronavirus. The company’s CFO, Jon Moeller, said at a recent conference that P&G used 387 suppliers across China, shipping more than 9,000 materials, according to CIPS.org.Moeller said: “Each of these suppliers faces their own challenges in resuming operations.”And it’s not just everyday consumer goods that are going to feel the impact of the virus. Smartphones and cars are so far among the consumer products that have been hardest hit from the virus. In fact, according to TrendForce, “forecasts for product shipments from China for the first quarter of 2020 had been slashed, by 16% for smartwatches (to 12.1m units), 12.3% for notebooks (30.7m units) and 10.4% for smartphones (275m units). Cars have dropped 8.1% (19.3m units).”Their report states: “The outbreak has made a relatively high impact on the smartphone industry because the smartphone supply chain is highly labor-intensive. Although automakers can compensate for material shortage through overseas factories, the process of capacity expansion and shipping of goods is still expected to create gaps in the overall manufacturing process.”A separate coronavirus analysis by Mintec says that “Chinese demand for copper (it has hitherto been responsible for consuming half the world’s output), will fall by 500,000 tonnes this year, and falls in demand have already impacted prices. From December to January the price of copper fell 9.6%.”The report notes: “Millions of people have been affected by the travel lockdown in Hubei province, the centre of the outbreak. This has been responsible for a glut of jet fuel and diesel on global markets at a time when petroleum supplies were already abundant.” Other products that have been negatively affected so far include pork, which is up 11% this month, chicken, garlic and dried ginger.

French Tourism Crashes By 35% Amid Virus Outbreak; Europe On Recession Watch — French Minister of Economy and Finance, Bruno Le Maire, told CNBC’s Dan Murphy on Sunday at the G-20 Finance Ministers and Central Bank Governors’ Meetings in Riyadh, Saudi Arabia, that the Covid-19 outbreak will have a material impact on the French economy and the world. The country’s finance minister warned France’s tourism sector has plunged following the outbreak of the virus last month. “We have fewer tourists, of course, in France, about 30%, 40% less than expected,” Maire said. “That’s, of course, an important impact for the French economy,” he said. Tourism represents 10% of GDP in the country and supports upwards of 3 million jobs. Maire said France welcomed 2.7 million Chinese tourists last year, “It won’t be the same, of course, in 2020,” he said, referring to the more than 200,000 flight cancellations since the virus broke out in China last month. France has reported 12 confirmed cases of the virus, and one death as the country “activates” 70 new hospitals in preparation for a much broader outbreak. Following a Sunday meeting with Prime Minister Edouard Philippe, Health minister Olivier Veran said: “Until now we have had [only] 38 health establishments prepared to welcome ill people – basically university hospitals [centres hospitaliers universitaires; CHUs].””I have decided, in agreement with the Prime Minister, that 70 establishments with a SAMU [urgent response team, service d’aide médicale urgente] will be activated tomorrow to increase our response capacity if necessary.”Veran said the country would boost its “testing capacity,” adding that protective gear, such as virus masks and biological suits, will be ordered in “large quantities.” He added: “We are acting quickly and decisively in the face of the threat of an epidemic…We are taking all the necessary measures to ensure the safety of the French people.”

China’s Tourism Ministry Warns Travelers To Avoid US Over ‘Racist’ Treatment Amid Outbreak – In retaliation for Washington’s travel ban targeting Chinese citizens and recent visitors, not to mention the CDC and State Department travel advisories, Beijing is finally putting its foot down: China’s Ministry of Culture & Tourism warned on Monday that Chinese citizens shouldn’t travel to the US because of “excessive outbreak prevention measures.”Yes, you read that right: China isn’t contesting that the US has the outbreak under control. Rather, it believes the US has gone too far. After the WHO insisted that travel restrictions weren’t necessary, the US and myriad other countries (most recently Israel) tightened their borders anyway. Now, the People’s Daily is accusing the US government of “unfair treatment of Chinese people”. In other words, Beijing is playing the race card. Put another way: A government that has been accused of jailing millions of Muslims in de fact concentration camps is now arguing that the US’s precautions to prevent a coronavirus outbreak were racist. People’s Daily: China’s Ministry of Culture & Tourism warns citizens not to travel to the US due to excessive #COVID19 outbreak prevention measures & a security situation which has led to unfair treatment of Chinese people. It also advises awareness of security measures. https://t.co/hqtPfOtr2V Beijing claimed on Monday that tourists had received “unfair treatment” in parts of the US, and China’s tourism bureau also warned that the “domestic security” situation in the US is lacking – possibly referring to several viral videos of Asian-Americans being berated in public, the Daily Mail reports.

Photos of deserted, nearly empty airports around the world show how coronavirus has decimated air travel

How coronavirus has hit life in Switzerland as car shows and football matches are cancelled Switzerland on Friday cancelled football matches, carnival celebrations, concerts and the Geneva International Motor Show in a drastic bid to stem the country’s new coronavirus outbreak in its early stages. The government announced it was suspending all public and private events with more than 1,000 participants until at least March 15th, invoking emergency powers to do so. The ban will even include a Catholic mass due to be held for the first time in 500 years on Saturday at the Geneva cathedral – a bastion of the Protestant Reformation. In Zurich, concerts by US shock rock pioneer Alice Cooper and guitarist Carlos Santana also had to be cancelled. The organisers of Baselworld, one of the world’s biggest watch fairs, said on Friday they would cancel the 2020 event. “For health safety reasons and in accordance with the precautionary principle following the bans of large-scale public and private events, … Baselworld announces that it has taken the decision to postpone the show,” it said in a statement. Popular carnival feasts in Basel and the town of Payerne in western Switzerland will also not go ahead. “Large-scale events involving more than 1,000 people are to be banned. The ban comes into immediate effect and will apply at least until 15 March,” the government said in a statement, after the country registered 15 cases. Hundreds of thousands of people typically attend the Geneva auto show. The government said that even for gatherings of fewer than 1,000 people “event organisers must carry out a risk assessment in conjunction with the competent cantonal authorities to decide whether or not the event can be held”.

World Bank, IMF considering ‘virtual’ meetings amid coronavirus scare: report – The International Monetary Fund and the World Bank are considering either scaling back their Spring Meetings planned for April or holding them via teleconference amid growing concerns of the coronavirus, according to Reuters. The Spring Meetings are planned for April 17 through April 19 and are set to host 10,000 people from across the globe at their headquarters in downtown Washington, D.C. As the virus grows in scope, the global economy has declined, particularly in China, where the virus originated. However, the virus has spread to Europe as well, with 447 cases confirmed in Italy alone as of Wednesday evening. The officials who spoke to Reuters noted that talks about the meetings are preliminary and will involve testing to see if they could be held virtually. Though specific officials spoke to Reuters under the condition of anonymity, the two entities also issued a joint statement to the wire service. “The question of arrangements for the Spring Meetings is one on which Bank and Fund have been coordinating with our respective Corporate Secretariats, which are our primary liaisons with shareholders,” the statement read. “We anticipate a decision on the scale and scope of Spring Meetings will be made in the coming days.” As Reuters noted, the World Bank previously canceled its meetings after the Sept. 11, 2001 attacks on New York and Washington.

$5 Trillion Wiped Out From World Stocks Amid Fastest Collapse In History – MSCI World Stocks collapsed from a record high into ‘correction’ in just five days. The plunge in global equities has wiped out more than $5 trillion in value, or equivalent to nearly Japan’s annual GDP. On Thursday afternoon, Guggenheim’s Scott Minerd said, “this is possibly the worst thing I have seen in my career… it’s hard to imagine a scenario in which you can contain the virus threat,” adding that “Europe and China are probably already in recession and US GDP will take a 1.5-2.0% hit.” “The stock market could be down 15-20%… and would likely force The Fed’s hand.”Guggenheim’s Scott Minerd says the coronavirus crisis is possibly the worst thing he’s ever seen in his career: “This has the potential to reel into something extremely serious” pic.twitter.com/xLhhNm3u7 tMSCI ACWI is a market capitalization-weighted index with broad equity market exposure across the world, plunged 10% in the last five days, its biggest drop since August 2011… The Dow Jones just saw its fastest collapse from an all-time peak since 1928, just ahead of The Great Depression. And the S&P 500 suffered its fastest peak-to-correction plunge ever… As for the Federal Reserve’s ‘Not QE’ last-ditch effort to prop the stock market up last fall, all equity gains have been erased. As we noted yesterday, the worsening global threat from the virus prompted Goldman Sachs to revise its earnings growth story for 2020:“US companies will generate no earnings growth in 2020. We have updated our earnings model to incorporate the likelihood that the virus becomes widespread. Our revised baseline EPS estimates are $165 in 2020 (previously $174) and $175 in 2021 (previously $183), representing 0% and 6% growth. Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, supply chain disruption, a slowdown in US economic activity, and elevated uncertainty. Consensus forecasts imply EPS will climb 7% in 2020 and 11% in 2021.” The drop in stocks shouldn’t be a total surprised given the plunge in EPS expectations… But we give the last word to NorthmanTrader.com’s Sven Henrich, who highlights the real tragedy in all this… Most likely the popular narrative will be to blame the coronavirus as the unforeseen event, nobody could have seen this coming, this was not something anyone could have prepared for. While that’s true on the surface it completely misses the larger point: The Fed, with it liquidity operations masked all the underlying issues in the markets over the past year. We had no earnings growth in 2019, we had multiple expansion. The bond market never confirmed the reflation trade, Gold had been rallying for months signaling something was amiss. And now the Fed left itself vulnerable to not being able to deal with a real crisis and basically openly invited people to TINA chase stocks into high valuations. And now everyone will blame the virus, but not the reckless chase into stocks into historic valuations to begin with.

Coronavirus threatens the global economy with a ‘sudden stop’ – Covid-19 is self-evidently beyond the point of meaningful containment. Virologists and infectious disease experts have known for three weeks that this was highly probable, and certainly not a mere tail-risk as suggested by equity market pricing. We are now there.The global economy may be heading for some sort of “sudden stop” in supply chains, trade flows and tourism more akin to the outbreak of the First World War than the Lehman or dotcom crises.What happens or does not happen in Wuhan has been overtaken by events in Iran, Italy, the Pacific Rim and no doubt Africa as well if there were surveillance data. The bond market is already signaling a downward lurch into global deflation. Yields on 10-year US Treasuries have fallen to all-time lows. Evercore ISI says zero yields are coming into “plausible” range. The question is whether this will be a short-sharp episode followed by a V-shaped recovery in the second quarter (priced by stocks), or a slower elongated “U-shaped” recovery (priced by the dollar, Swiss franc, and safe haven bonds), or a Spanish cedilla (priced by almost nobody) as real fear of central bank impotence starts to take hold in the markets for the first time.I don’t wish to digress too far into Covid-19 science, except to point out that much of the global virology fraternity has lost patience with the World Health Organisation – deemed a political captive of China – and is exasperated by the reflexive reassurances of public health officials.I suggest tuning out media noise – much of it dwelling on the malevolent distraction of which individual may have been spreading Covid-19 – and going straight to research papers being released daily by PubMed Central, the data bank of the US National Library of Medicine.That way you avoid the sort of misunderstanding I just heard on the BBC, which stated that the death rate is comparable to flu. No, it is not. The average morbidity of flu annually is 0.1pc; Covid-19 is an order of far greater magnitude.The latest tracking data as of Feb 22 (unreliable, but the best we have) is that the mortality rate is 4pc in Wuhan, 2.8pc in Hubei, and 0.8pc in other regions of China, though all figures are creeping up as slow deaths hit the data.There can be long lag times after infection so it is too early to infer ratios from South Korea, Italy and Iran, but this is surely more like the Spanish Flu of 1918 than anything we are used to. Chinese data suggests that roughly 14pc of those infected over the age of 80 are dying.

NYT: “The Coronavirus Is Not A Civilization-Ender But…” — Just because the New York Times Opinion Section is a perennial object of ridicule by both the right and the left doesn’t mean its writers don’t occasionally make a good point.And today, we’d like to draw our readers’ attention to a column published Tuesday by Ross Douthat, a member of the NYT’s editorial board.As Douthat points out, the outbreak has put Democrats, and liberals more broadly, in a difficult position. Eager to jump at every opportunity to criticize President Trump, many are secretly hoping the outbreak gets worse in the US because it could hurt Trump’s chances of reelection. Many, including top Dems like Schumer, Pelosi etc., have already accused the administration of being unprepared and not doing enough. But if the outbreak does get worse, it could deal another savage blow to the system of global frictionless exchange of people, goods, services and capital, by making countries more suspicious of allies and enemies alike.This is why liberals are bashing Trump while arguing that pointing out China’s failures is “racist.”Republicans also have an incentive to play down the outbreak, as Trump is doing: They need to keep the market buoyant and stave off a recession that could tilt the election in favor of the insurgent socialists backing Bernie Sanders.In other words: The virus may not be a civilization-ender, as Douthat points out. But it could be the straw that breaks globalization’s back. Read the text below:

Helicopter money is here — Amid the border closures and flight cancellations, comes one trip that – were it not for the coronavirus – might never have happened. The money helicopter has arrived. Via the South China Morning Post:

Hong Kong permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200) in a HK$120 billion (US$15 billion) relief deal rolled out by the government to ease the burden on individuals and companies, while saving jobs. Financial Secretary Paul Chan Mo-po confirmed an earlier Post report when he unveiled the payment during his budget speech on Wednesday morning, along with a full guarantee on loans taken out by companies to pay wages and taxes.

This follows similar efforts by Macau, which will offer residents shopping vouchers, and Singapore, which will give people between $100 and $300 in a one-off payment. Much touted but seldom tried, economists have long seen helicopter money as the most radical tool that central bankers could deploy to fight a weak economy. The idea is usually credited to doyen of monetary economics Milton Friedman.* Unlike most monetary policy measures, people tend to get excited when it is mentioned – unsurprisingly given the image of loads hundred dollar bills being thrown out of helicopters and falling to the ground that it conjures up. It’s all very Hollywood in a way that, say, buying bonds on electronic screens is not. However in these latest instances it’s the politicians leading the charge. We are not sure whether that would happen in somewhere more fiscally conservative, such as Northern Europe, or whether it would fall on the shoulders of the European Central Bank. Hopefully, we will not need to find out. Has the measure worked in the past? The most often cited example of the policy in action comes from Japan, which in 1999 dolled out consumption vouchers that people had to spend within six months. The results on that occasion were far from staggering. Will it work now? We haven’t a clue. Some say officials should just cut taxes instead. Maybe, but that is far less exciting. It might all depends on how the policy is designed and whether people think more trouble is in store (when they often decide to save one-off payments instead). But if the virus continues to haunt us consumers in the weeks and months ahead, expect more authorities to try it.

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