Since first emerging very late in 2019, COVID-19 has been wreaking havoc across global markets.
The earliest signs of tough days in the financial markets came at the beginning of February, the equity markets went into freefall. By late March, things are not looking any better.
Many experts believe that these are only the early signs of a situation that could get much worse. The following is a quick look at the impact of the coronavirus on the markets as well as the likely impact of the disease.
The events of the recent weeks
The financial realm experiences shifts from time to time. Traders rely on brokerage companies like ThinkMarkets to access the various items of trade. At a time when there is uncertainty in the market, the effects are felt in the live markets first.
Considering the importance of China in the global supply chain, the effects across industries have been worrying. The demand for oil by China has for instance gone down drastically in the months of January and February compared to last year. China is a major supplier of essentials in the energy sector.
Manufacturers and producers around the world are bracing for disheartening results – to say the least – for the first two quarters of the year.
In a bid to forestall an inevitable crisis in the financial markets, the US financial institutions have instituted some market-related measures. A few days ago, the Fed mulled cutting the interest by 50pbs.
While this cut was expected, it has demonstrated how dire the situation is. The Fed has not been forced to take such measures since the 2008 financial crisis.
In the oil sector, OPEC has been slow to act. The Chinese economy practically came to a halt when the quarantine came into effect; but OPEC missed the window to act when it could have helped. While the body has now cut production, it showed that major corporations and market players need to act quickly. Since February, Russia and Saudi Arabia have been engaged in an unending price war that has kept major oil producers on edge.
The likely situation in the coming weeks and months
As mentioned earlier, the current coronavirus has been rising rapidly and much faster than previous epidemics. By now, the virus has been officially declared a pandemic. The situation of the markets will thus continue to get worse with the ramifications being felt exponentially. While it’s too early to tell, an economic recession in the US and globally is almost inevitable.
For now, the most important thing is to keep the information flowing. The news that will be coming out on a daily basis will dictate exactly how the situation will pan out.
Regional impact of coronavirus
Financial impact in Asia
China has been the most affected country by the coronavirus and the financial impact has been huge. Other regional markets are also feeling the impact. South Korea saw a spike of cases and this has had an impact on the local natural gas and oil market. The 2020 Olympics have been postponed to 2021 and Japan will have to hope for better days ahead.
Commodities in Asia
The market in China is already depressed. The second-largest economy in the world is seeing an unprecedented shift and local refineries are taking on credit. To sustain some stability in the market, China has been considering measures to deal with the volatility. The gradual easing of curfew restrictions in Hubei province also indicates optimism regardless of the tough market situation.
Trade, agriculture and other markets will also continue to slump in Asia.
Financial impact in North America
The US stock market has reported record-breaking declines over the course of March. A historic $2 trillion stimulus package was approved by the US senate. The hope is that key industries in the manufacturing sector and small businesses will benefit from it. President Trump has been openly frustrated by the poor performance of the stock market. For now, the markets are rallying as more details about the package emerge.
The concerns currently are that global trade will be hit immensely and there is likely to be a currency war.
The commodities market in North America
Canada, a major supplier of oil, has been dealing with challenges exporting its supply to the rest of the world. They mostly supply oil to North America, but current reserves are likely to continue to pile up at home. As a result, Canada is likely to lean on gold trade.
Meanwhile, the US exports agricultural products to China on a large scale. The low demand for goods by China will also impact the agricultural sector in the US.
Financial impact across the rest of the world
Europe was dealing with Brexit for the most part of last year. The UK heavily relies on the EU for low-skilled jobs with up to 21% of workers coming from the region – a supply likely to dry up thanks to new restrictions on movement.
In Germany, pundits are indicating that stagflation is almost an inevitability. Trade with China and other smaller economies is slowing down and financial markets around the world will be strained for the rest of the year.
The global commodities market in the world
Going by recent events in Italy, the world can almost certainly brace for strained shipping processes. Saudi Arabia has been in a price war with Russia over market share for oil and inaction from the wider Middle East has caused friction in the global oil market.
In a Nutshell
The commodities market across the world is already experiencing major strains. The oversupply of commodities like oil will result in major price wars. For now, the actual impact of the coronavirus on both the financial and commodity fronts is unknown in the medium term, but radical disruption in the short term is now inevitable.
As in previous times when there have been major shifts in the markets, it is not possible to predict at what stage or time the markets will take a turn. Understanding the full impact of the downside in the stock markets will also take time.