· CORONAVIRUS UPDATE:
- As deaths approach 500, no sign of a slowdown in China.
The death toll from the monthlong coronavirus outbreak has continued to climb in China, rising to 490. New cases have surged by double-digit percentages in the past 11 days, with no sign of a slowdown.
More people have now died in this epidemic than in the severe acute respiratory syndrome, or SARS, outbreak of 2002-3 in mainland China. During that outbreak, 349 people died in the mainland.
The new figures from China’s Health Commission on Wednesday showed that 65 people died on Tuesday and that 3,887 more people had been infected. So far, 24,324 people are known to have been infected.
- Some analysts are trimming their China GDP forecasts amid coronavirus outbreak
Some analysts and economists are downgrading China’s GDP growth forecast for 2020 as the coronavirus outbreak hits the world’s second largest economy.
Economic activity in many cities halted as factories closed for week-long Lunar New Year holidays. The break was extended in some places — a move that will hit global supply chains.
Meanwhile, the service sector has also been hit as people are encouraged to stay at home. New movie launches have been cancelled during the country’s peak season for consumer spending.
But some have argued that Beijing’s expected stimulus measures may offset the outbreak’s impact on the economy.
In 2019, China’s full-year GDP growth was 6.1%, down from 6.6% the year before.
* ANZ: Maintain at 5.8%
ANZ is maintaining full-year GDP growth forecast at 5.8% for now, although it has downgraded China’s first-quarter growth from 5.9% to 5.0%.
“Industrial activity and exports will decrease due to a decrease in the number of working days,” ANZ economists said. “Supply chain activity will be interrupted as Wuhan is a large industrial hub in central China.”
The economists are estimating a loss of 3.5 working days in the first quarter of 2020.
* Citi: Downgrades from 5.8% to 5.5%
Citigroup economists are expecting China’s full-year growth to slow from their previous forecast of 5.8% to 5.5%.
They said the negative economic impact will likely be concentrated in the first quarter of the year.
“Carefully calibrated policy interventions will be critical to mitigate the economic shock and maintain social stability,” they added in a note.
* Economist Intelligence Unit: Downgrades from 5.9% to 4.9-5.4%
The EIU said the outbreak could reduce real GDP growth in 2020 by 0.5 to 1 percentage point from its baseline forecast of 5.9% if the outbreak develops into an epidemic comparable to SARS.
“The government will implement restrictions on travel and shipments, which will cause disruptions to business activity,” said Imogen Page-Jarrett, a research analyst.
“If the outbreak becomes an epidemic, rising expenditure on healthcare for local governments will limit room for spending in other areas,” Page-Jarrett added.
“Plans for infrastructure building and other forms of stimulus aimed at putting a floor under economic growth this year could be put on hold.”
While sectors like travel, tourism and manufacturing will be the hardest hit, some sectors like pharmaceuticals, online entertainment and e-commerce may pick up. Car sales may also get a boost as consumers stay away from public transport, he said.
* Macquarie: Downgrades from 5.9% to 5.6%
Macquarie downgraded its forecast for China’s first-quarter GDP growth from 5.9% to 4%. It is also shaving the country’s full-year GDP growth from 5.9% to 5.6% — assuming the coronavirus outbreak comes under control by the second quarter of the year, said Larry Hu, chief economist for China.
“Our outlook for 2020 remains as ‘getting worse before getting better,’” said Hu in a report this week, although it’s still too early to assess the damage, he added.
Hu said he wasn’t too concerned about the loss in consumption, as any losses would be an one-off event.
“For us, what’s more important is the knock-on effect on property and the corporate sector,” Hu said. “Especially, after four years of up-cycle, the property sector was already at a turning point even before Coronavirus hit,” he said.
* Mizuho: Downgrades from 5.9% to 5.6%
“Given the Wuhan virus (2019 nCoV) is exponentially more infectious than either SARS or MERS, devastation could be far more as travel, trade and economic activity face a greater scale of disruptions from larger and more transmissible outbreak,” said Vishnu Varathan, head of economics and strategy for Asia.
For the first half of the year, Varathan said he expects China’s GDP growth between 4.8% to 5.2% before picking up to 5.8% to 6.3% for the second half due to pent-up demand.
* Moody’s: Maintains at 5.8%
At this time, the ratings agency is keeping its forecast of a 5.8% GDP growth for China in 2020.
However, the composition of growth is likely to shift due to the impact of the virus on consumption in the first quarter that will potentially be offset by stimulus measures, said its analysts in a report last week.
Even though consumption will bounce back, the recovery will not be as strong as after the SARS outbreak of 2002 to 2003, as there will be “demand destruction,” said Martin Petch, a senior credit officer at Moody’s Investors Service.
“I think this time around there will be some demand which has been essentially destroyed,” Petch told CNBC’s “Squawk Box.”
“People haven’t traveled during Lunar New Year for example, and it’s unlikely after this period of slower consumer demand that they’ll double up on restaurant spending. For example, they won’t go twice as many times in the coming quarters,” Petch added.
* Natixis: Downgrades from 5.7% to 5.5%
The immediate impact of of the coronavirus outbreak will be worse than that during the severe acute respiratory syndrome virus outbreak of 2002 to 2003 as the service sector is now China’s key growth engine, said Alicia Garcia Herrero and Jianwei Xu, economists at Natixis.
“Based on the SARS’s experience, the service sector is likely to be more severely affected than the manufacturing sector, especially for the transportation sector, which is an important component of services,” they wrote. China’s economic growth is also going through a structural deceleration due to an aging population and is at the end of a long urbanization process, they added.
“In other words, the coronavirus is hitting a weaker economy than was the case with SARS,” they wrote.
* Nomura: ‘Significantly lower’ than 6.1%
Nomura said that “the worst is yet to come” in the outbreak as the Chinese government acts on all front to contain the virus after its initial slow reaction.
Nomura analyst Ting Lu said in an email to CNBC last week that China’s annual GDP growth could be “significantly” lower than the 6.1% in 2019.
The Japanese bank said that the economic impact of the coronavirus could be worse than during the SARS epidemic of 2002 to 2003.
* Richard Bernstein Advisors: Fears will ‘knock stuffing out’ of growth
“The coronavirus is a serious issue and there is nothing positive to say about it,” said Richard Bernstein Advisors, an investment firm.
It was bleak on the outlook in the first half of the year.
“To be frank, the attempts to contain the coronavirus and the associated public fears will knock the stuffing out of China’s 1Q20 and potentially 2Q20 GDP and profits,” said the firm in a note last week.
Beijing will likely respond to the economic impact of the coronavirus with even more monetary and fiscal stimulus on top what what is already in the pipeline.
“If the virus is contained within the next several months, then Chinese GDP could be significantly stronger than expected during late-2020 and early-2021.”
* Vanguard: Maintains at 5.8%
The main impact on China’s economic growth is likely to be that on sentiment, said Qian Wang, Vanguard’s Asia Pacific chief economist.
“The good news is that the Chinese government has taken serious actions quickly,” said Wang in a note.
The investment advisor is maintaining its outlook for China’s 2020 GDP growth at 5.8%, although the risk is clearly tilted toward the downside, she added.
The viral outbreak will threaten China’s growth in the near-term, but Vanguard said there is potential for a rebound in the second half of the year due to anticipated government stimulus.
* UBS: Downgrades from 6% to 5.5%
UBS is downgrading its forecast for China’s growth in 2020 from its previous 6.0% estimate to 5.5%.
“We believe China’s aggressive measures to contain the virus, including quarantining, as well as preventive measures in other countries like flight cancellations, and border controls, will ultimately prove effective,” wrote Mark Haefele, global chief investment officer.
Still, “these measures will contribute to a near-term negative economic shock, as a result of curtailed consumer demand and supply chain disruptions,” Haefele added in a report last week.
Assuming successful containment of the virus, growth will rebound in future quarters due to pent-up demand and potential government stimulus, he said.
- US working with drug firm on new coronavirus treatment
The United States is working with a pharmaceutical company to develop a treatment for the 2019 Novel Coronavirus, using a class of drug that has boosted survival rates among Ebola patients, officials said Tuesday.
The partnership between the Department of Health and Human Services (HHS) and Regeneron will develop monoclonal antibodies to fight the infection, a different line of treatment to the antiretrovirals and flu drugs that have also emerged as possible defenses against the disease.
- Some analysts are trimming their China GDP forecasts amid coronavirus outbreak
Some analysts and economists are downgrading China’s GDP growth forecast for 2020 as the coronavirus outbreak hits the world’s second largest economy.
Economic activity in many cities halted as factories closed for week-long Lunar New Year holidays. The break was extended in some places — a move that will hit global supply chains.
Meanwhile, the service sector has also been hit as people are encouraged to stay at home. New movie launches have been cancelled during the country’s peak season for consumer spending.
But some have argued that Beijing’s expected stimulus measures may offset the outbreak’s impact on the economy.
In 2019, China’s full-year GDP growth was 6.1%, down from 6.6% the year before.
“The immediate and most significant economic impact is in China...but will reverberate globally, given the importance of China in global growth as well as in global company revenue,” said Moody’s Investors Service in a report last Wednesday.
On the same day, a Chinese government economist said that the country’s first-quarter economic growth may drop to 5% or even lower due to the virus outbreak, Reuters reported, citing a local magazine.
- China’s central bank lowered interest rates on reverse repurchase agreements — a tool used by central banks to add money to the money supply — on Monday to ensure adequate liquidity supply in the system as the country tackles to contain the virus outbreak. The People’s Bank of China reduced the 7-day reverse repo rate by 10 basis points from 2.50% to 2.40%, and the 14-day rate was slashed from 2.65% to 2.55%.
PBOC injected 1.7 trillion yuan (approx. $242 billion) into money markets through reverse repurchase operations on Monday and Tuesday. On Wednesday, the central bank said it decided not to conduct open market operations for the day because there was “adequate liquidity in the current banking system, which is sufficient to meet the market demand.”
Still, some economists think the Chinese central bank’s efforts may not be enough to offset the economic impact of the coronavirus outbreak that has already killed 490 people in the country.
Cochrane said that while economic impacts of the virus outbreak will be felt elsewhere in Asia and in the U.S., China will feel the brunt of it. He highlighted five industrial sectors that appear to be most at risk from the coronavirus and the resulting quarantines throughout the country: Transportation and warehouse industry, wholesale and retail trade, commercial real estate, entertainment, and manufacturing.
“These five industries combined would reduce first-quarter 2020 GDP by 1.2%, or around 0.3% for the entire year,” Cochrane wrote. “This does not include multiplier effects within other industries, a longer-term loss of confidence, or the longer-term impact on credit availability and credit quality.”
· Dollar holds gains against yen as coronavirus risks dominate
The dollar held gains against the yen on Wednesday amid a broad unwinding of safe-haven positions as China’s responses to the coronavirus outbreak supported investor confidence, even as deaths and new cases climbed.
Gold tumbled, the Japanese yen had its worst session against the dollar in nearly six months and the Dow Jones stock index posted its biggest daily gain since August in overnight trade.
However, the yen, seen as a haven by virtue of Japan’s position as the world’s largest creditor, halted its decline by morning, suggesting investors are still cautious.
It last traded just above a 1-1/2 week low at 109.43 per dollar. The trade-exposed Australian dollar, by contrast, bounced 0.7% on Tuesday from not far above a decade low to its highest in a week. It last stood at $0.6733.
“Investors want to see some actual stabilisation in cases and an improvement in recovered people before rallying again,” J.P. Morgan analysts wrote in a note.
“As long as we don’t see this in numbers, it feels like the rally should be faded.”
In offshore trade, the Chinese yuan held overnight gains and stayed on the strong side of 7-per-dollar at 6.9943. The New Zealand dollar steadied at $0.6486.
· China’s exports and imports likely fell in January after a brief rebound at the end of last year, a Reuters poll showed, and a rapidly spreading virus outbreak could disrupt its global trade for months to come.
Exports from the world’s second-largest economy are expected to have dropped 4.8% in January from a year earlier, according to a median estimate from the survey of 18 economists, compared with a 7.9% gain in December and marking the steepest fall since February 2019.
Imports likely fell 6% from a year earlier in January, a sharp contrast with 16.5% growth in the previous month.
The drop was likely due to seasonal distortions caused by the long Lunar New Year holidays, when business activity typically slows, analysts at Goldman Sachs said. The holiday fell in February last year.
The impact of the virus on trade will start to show in February data, the analysts said. Nearly 500 people in China have died in the outbreak so far, with over 24,000 infected.
· Oil prices rose on Wednesday, boosted by news that OPEC and its producer allies are weighing further output cuts to counter a potential squeeze on global oil demand resulting from China’s fast-spreading coronavirus.
Brent crude oil futures LCOc1 were up 31 cents, or 0.6%, to $54.27 a barrel by 0734 GMT, while U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 21 cents or 0.4% to $49.82 a barrel. Both prices earlier rose more than 1%.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, a group known as OPEC+, weighed the impact on global oil demand, and economic growth, of the coronavirus outbreak at a meeting on Tuesday, hearing from China’s envoy to the United Nations in Vienna.
Reference: CNBC, Reuters, New York Times
Thai
Eng