Displaying items by tag: bear market

(Washington)

There have been many stories about how coronavirus could hurt the economy. We have covered the extent to which fears of the virus have hurt various sectors as well as general Chinese factory production. Today we have some concrete stats on how the virus is hurting trade. So far, there have been about 350,000 less shipping containers leaving China than there would have been without the virus. Dockworkers at major ports are sitting idle as nothing arrives. Fears of job losses are mounting because workers have nothing to do. The 350,000 figure includes China to Americas shipments as well as China to Europe shipments.

FINSUM: That is a phenomenal amount of production if you think about it, and that is only a portion of the export market. We think there is a good chance of a Chinese recession that may trickle into the global economy.

(New York)

There is a lot of focus right now on how great an impact coronavirus will have on the stock market, both locally and abroad. So far it has impacted stocks on certain days, with the effect immediately disappearing soon after. The reality is, however, that coronavirus’ impact may be uneven, with some sectors getting hit badly and others being fine, even as benchmark indexes might seem largely unhurt. We have already written about how luxury retail is hurting because of a lack of Chinese tourists, but now it is looking like commodities might be deeply wounded across the board. China is a huge driver of commodity markets as its demand fuels the market. And with the economy so shut down, commodity demand is going to drop off a cliff.

FINSUM: What is most worrying is that commodity prices don’t seem to reflect this at all, which means they are at risk of plummeting.

(Beijing)

It is often hard to get a handle on how the Chinese economy is doing. The country’s government controls information very tightly, which makes the whole nation a black box. However, with coronavirus fears in full flourish there is some additional insight available, and it is worrying. Factories across the country have been shut as part of an effort to contain the disease, and even tech workers are working remotely. All over the country, from Beijing to Shanghai, to industrial provinces, workers are not reporting to factories (following government advice to stay home). Even today, as some parts of the country were supposed to return to work, many are not.

FINSUM: The Chinese economy seems to have completely stopped. It is hard to imagine there will not be a significant recession this quarter in China, which could reverberate all over the world.

(New York)

While the stock market had a little blip because of coronavirus, prices are already back to all-time highs. That might be very misguided. The market appears to be discounting the huge effects coronavirus is having on the Chinese economy, which has completely ground to a halt according to some reports. Investors have been complacent about the risk because when SARS happened in 2003, there was a strong v-shaped recovery. However, at that point the Chinese economy was growing at 11%, not at the barely 6% it is today. The global economy itself is only a few tenths of a percentage point off what most would consider a downturn, so things are fragile to begin with. Speaking about the market’s bullish outlook, Stephen Roach, former chief economist and chairman of Morgan Stanley Asia says “This is a market where if you declared it was World War III, they would rally on reconstruction. It’s pretty ludicrous the optimism that is built in”.

FINSUM: If that quote does not hit the nail on the head, we don’t know what does.

(New York)

Stocks are roughly flat on the year, and there is a growing body of evidence that we may have finally come to the end of this economic and market cycle. Commercial construction is slowing, car sales have peaked, and banks are tightening lending standards even as demand is falling—all signs of an economy headed downward. According to Mike Larsson of Weiss Ratings “It is the type of stuff you see at the end of credit and economic cycles … I am concerned about the durability of this market and economic expansion”.

FINSUM: Only time will tell if the economy slows down. If so, markets will probably follow suit. Q4 GDP numbers were not nearly as good as they looked, as without trade war related boosts, growth would have only been 0.6%.