Morning all.
I saw this story earlier and it added to my thoughts that markets are not paying enough attention to what is going on in Asia at the moment with regard to the COVID-19 outbreak.
Singapore has just announced that they will close schools and most workplaces, except for essential services and key economic sectors for a month.
“We have decided that instead of tightening incrementally over the next few weeks, we should make a decisive move now, to preempt escalating infections.”
Prime Minister Lee Hsien Loong
I think the markets have been operating to a premise which is now proving itself to be incorrect, but I seems like markets have not really woken up to this fact.
That premise was that the Coronavirus spread was following a kind of wave across the world. China and the major Asian economies were hit first and reacted rapidly to get it under control.
The spread to the rest of the world was not avoided though and the wave moved to Europe, which over the last 2 weeks has become the epicentre of the outbreak and getting most of the news while it seems Asia was getting back to business, and on the other side of ‘the curve’ which became the catchphrase to suggest success has been achieved.
Now the USA is starting to take all the attention as a crisis builds because they were very slow to take this seriously and implement control measures.
Expectations that each wave would quickly pass and then the world economy would emerge on the other side ready to recover as life returns to normal should really be in question now when considering this news from Singapore along with what is happening in some other parts of Asia.
South Korea is a good example of a country being held up as one that’s dealt with the outbreak very well, but as can be seen they are still on a steady upward trend in total cases despite attention moving off them a few weeks ago when Italy, then Spain started to take all the headlines. But cases in South Korea are now above 10,000 and I saw a report on FT.com saying that officials in the country are frustrated that they cannot bring an end to it.
Hong Kong is another which has been very quiet, but almost out of the blue they have just announced that from today at 6pm all bars and pubs must close for 14 days. They are taking this seriously and people who violate the order could be subject to fines of HK$50,000 (US$6,400) and six months in prison.
And lastly, looking at Japan, talk is ramping up that they could declare a state of emergency and institute country wide lock down measures if current attempts to contain hot spot areas are not successful.
Until recently they were intent of forging ahead with the Summer Olympics, but since that was postponed the situation in Japan seems to have gone down hill. The numbers are small, but they are reacting very serious despite this.
In Tokyo, the governor has already asked employers to implement teleworking where possible, in infections hot spots residents are being asked to stay home this weekend, and Prime Minister Shinzo Abe is working on a plan to issue 2 face masks to the entire population from what I could gather.
Something else to note about Japan is that they are not done a great deal of testing, so the current situation could already be worse than the data is showing.
The Asia Wave Is Still Rolling
My point in raising some of these statistics and the new measures being taken is that life and business is far from returning to normal in Asia, so expectations that Europe will soon be on the other side of the curve and the US shortly after could be overly optimistic.
Economic forecasts based on current time-frame expectations could become unstuck if the length of time to truly squash the infection spread becomes a tougher battle than expected.
Here in the UK I totally expect our current lock down, which is set for review on the 13th, to be extended for another 2-3 weeks. Germany and Spain have already extended theirs and there is talk of Italy adding another extension to their already lengthy lock down.
In the US, the ’15 Days To Slow The Spread’ campaign was renewed, but as a ’30 Days To Slow The Spread’ campaign taking them to the end of April, but there are still US states not in lock down and many still allowing gatherings such as Church services.
The fact that the SP500 had a positive day yesterday on the back of 6.6 million jobless claims while also surrounded by more grave news about the virus spread and pending problems with small business support shows how market dynamics are not really following what is happening right now.
With the huge bailout and stimulus packages already announced, plus talk of a phase 4 package already, in my opinion the markets are overly focused on these various ‘rescue’ measures and not looking closely enough at how country/global GDP will be heavily impacted if there is a protracted recovery and also ignoring the kind of earnings damage that these rescue packages cannot help compensate for in business performance.
There is not much consensus regarding whether the markets have already put in the bottom with the March lows, but to me markets seem very complacent at the moment, still riding a ‘high’ from all the stimulus packages, and I think there needs to be another period where some real concern is expressed regarding what damage is being sustained to the global economy before talk of a bottoming process can play out in a constructive manner.
Stay safe, thanks for your time.
