Displaying items by tag: recession
Many have been wondering when junk bonds were going to start feeling pain. Despite the previous risk of recession, junk bonds did quite well over the last several months. However, since the big flare up over coronavirus, they have started to be seriously wounded. On Friday, junk bond spreads to Treasuries were at 366 bp—very low. As of yesterday, they were at 418 basis, a 50bp+ rise in two trading days, showing how much investors fear the economic impact of coronavirus.
FINSUM: We think these spreads are going to keep moving higher, even if stocks level out. Bond investors are a suspicious bunch and an economic slowdown would hit high yield companies harder than average.
Global and US stocks are teetering on the brink of a major correction right now. US indexes fell around 3.5% and fears over the spread of coronavirus and its impact on the economy continue to rattle the psyche of markets. One analyst summarized the deepening fears of the virus’ potential impact this way, saying “When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?”.
FINSUM: There was an early morning bounce in Asian markets that fizzled. The news today is not any better than yesterday. It is easy to imagine the bottom temporary falling out of markets.
Stock across the developed world went into freefall today as news spread of the explosion of the coronavirus in Europe and the subsequent quarantine that has been put in place in Northern Italy. Additionally, US data shows business activity contracted for the first time in four years in February. The S&P 500 and Dow are both down about 3.4% at the time of writing.
FINSUM: The virus is now no longer contained to China, with Italy sporting 150 cases and three deaths. Chip companies, travel and tech are getting hit the hardest.
In many ways the coronavirus just became real for stock markets. Up to this point, fears about how the virus might impact the economy and stocks seemed esoteric and intangible. Then this happened: Apple warned that it would miss its quarterly revenue target because of coronavirus. It is having trouble producing phones because of unstaffed Chinese factories. Accordingly, the company announced “iPhone supply shortages will temporarily affect revenues worldwide”.
FINSUM: This is when the rubber meets the road and it becomes much easier to see how this virus could cause a global recession. The engine of the world (China) is sputtering.
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.