February 25 2020 Market Update

Coronavirus and the Global Economy

In addition, there were a couple of global geopolitical milestones that could help steer markets and the global economy over the coming year – namely, Brexit and the signing of a phase one trade deal between the US and China.

Let’s take a look at the news and the impact it could have on your portfolio.

Coronavirus: Facts and Fears

At this point, the overall fatality rate of Coronavirus is 2.3 percent, with the greatest risk faced by medical staff and the elderly.[1] Outside of Wuhan, the province at the epicenter of the outbreak, the death rate is just 0.4 percent in China. Just over 80 percent of cases have been classified as mild.

Given the rapid spread of the disease, the human cost within China has been considerable, which has fueled worldwide fears. One analysis notes that the number of cases could be far higher (which would push the death toll lower), though it appears that the extreme measures taken to quarantine entire cities and regions has helped to stave the spread of the virus.

This is reassuring for many – and indeed most of us do not need to worry about Coronavirus in ourselves and loved ones. But outside of the immediate tragedy for those affected, the impact of the disease could continue to be felt for some time by China and the global economy.

China has imposed significant restrictions on movement to help stop the spread of the virus: about 150 million Chinese residents have been largely confined to their homes, while another 760 million have some kind of restriction on movement in place.[2]

Chinese factories, which account for about 25 percent of global manufacturing output, have been slow to start up again as restrictions eased. Numerous multinational companies, including Fiat Chrysler, Apple, and Airbus, have indicated that the outbreak and attendant shutdowns have had an impact on production. Large conglomerates that rely on Chinese sales, including Ikea, Nike, and Starbucks, have also been affected.[3]

It is a concern that the impact on Chinese manufacturing and consumption could clip the wings of the global economic recovery into 2020. Further, threats of a global pandemic still linger and we will continue to monitor the situation.

Other Geopolitical Milestones

The official “Brexit” is complete as of January 31, 2020, though like many political endings it represents another beginning. The United Kingdom has until the end of the year to come to a revised trade agreement with the European Union to replace its terms of trade as a member of the EU.[4]

Given the drawn-out negotiations required to simply exit the union, it’s unlikely that the negotiation of a new trade pact will be simple. Many Europe-watchers are concerned about the fallout of a potential “hard” exit on January 1, 2021: without a new agreement in place, the respective parties would revert to World Trade Organization rules, which could bring costly barriers, tariffs, and logistical slowdowns to the United Kingdom and its most significant trading partner.

Here at home, the US and China signed a phase one trade deal on January 15, 2020.[5] This deal is intended as a stepping-stone to resolving the ongoing trade dispute between the two nations. Markets took this news as a strong sign that the terms of trade going forward would be more amenable to business.

Of course, with the onset of Coronavirus, the implementation of certain measures and the focus on continued negotiations may be stalled. Time will tell what happens next.

Finally, as we’ve mentioned previously, this is obviously an election year,[6] and with that we expect to see the markets closely watching developments.

Please reach out if you would like to schedule a first quarter meeting to review portfolios or your planning.

JSF Financial