Coronavirus is spreading, forcing analysts and experts to change forecasts about the development of the economy and future trends.
Declaring an emergency, the World Health Organization did not recommend restricting movement and trade. But China acts differently. Authorities encourage the organizations to extend the New Year holidays. Because of this, over 70% of the Chinese economy will start working only next week.
After the meetings held last week, the US Federal Reserve and the Bank of England announced that they would monitor the situation.
Most of all, the situation with the virus will affect China, but other countries will suffer from it too. Because of this, economists are forced to change forecasts for the current year.
This week, Donald Trump will make a speech in the United States Congress, while Christine Lagarde is going to be a speaker at the European Parliament. Most likely, the topic of coronavirus will be addressed in their reports.
What is going on in China?
At the beginning of the week, the stock and commodity markets have dropped dramatically. China is the largest consumer of raw materials in the world; investors fear that demand will begin to fall. Contracts for metals, fuels and agricultural products have fallen to maximum possible 8%.
The stock market has experienced the biggest wave of sales in recent years. In the first minutes of trading, the securities fell to the maximum limit over the session. Many investors did not manage to leave the market and suffered heavy losses.
About 4,000 different securities are traded on exchanges in Shanghai and Shenzhen. Of these, only about 160 have not fallen in price. Only shares of companies operating in the medical field have risen. It is estimated that they can make large profits due to the disease.
On Monday, CSI 300 fell by 9.1%. This has happened for the first time in its history.
For traders living in mainland China, the situation has worsened because they could not work from offices. Some companies had to seriously cut their staff. Authorities urged citizens to work from home whenever possible.
What will happen to oil?
Experts differently assess the future of the oil market. S&P estimates that demand may fall by 2.6 million barrels per day this month; the drop is considered to be 2 million next month.
Fitch Ratings believes that coronavirus will severely restrain demand, and there will be a glut in the market due to the production by Norway, the USA and Brazil. The oil glut will be regulated by the limitation of production by OPEC, as well as the duration of the outbreak.
China is the largest oil consumer; if purchases are noticeably reduced, this will affect the entire market. China spends 14 million b/d, which is about 15% of the global consumption.
Analysts are changing forecasts for 1-3 quarters and note that price recovery should be expected later in the year.
The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group