The disease that started off as a regional Chinese health challenge has now become an international economic concern that is spreading unease and uncertainty.
Tembo gave a brief outline of the disease’s situation and status in its last blog and newsletter but the situation is rapidly changing by the day. In Italy, the number of cases and deaths is beginning to pick up and the government has declared a nation-wide quarantine affecting many millions of people. Initially the Italians quarantined a few northern regions, particularly the region of Lombardy – home to Italy’s major stock market, key industrial assets, and economic hub. That quarantine is now being covered to a greater number of regions. The Italian Prime Minister cautioned all Italians to be mindful of the risks of the disease and to stay at home and indoors if possible. In Iran, the rate of new cases and deaths is rapidly picking up, while the signs from China is not all gloom and doom, with some calm reemerging and President Xi visiting Wuhan – the epicentre of the disease.
The economic uncertainty created by the disease is being intensified by the massive fall in oil prices – the biggest in 30 years. Russia and Saudi Arabia could not come to a conclusion on oil supply output. Both OPEC, and OPEC+ failed to come to a consensus on oil supply to the market. Subsequently, oil prices have fallen rapidly and the Canadian economy and the Canadian dollar are being negatively affected. It is estimated that Canadian GDP falls by over $37 billion with every $15 drop in oil prices per barrel. Our economy is highly dependent on energy – and will remain so for many decades. Market demand for oil was falling well before the outbreak of the disease, and the uncertainty of the disease is itself weighing down on demand and dousing out consumer confidence.
In North America itself, as well all know, the BOC (Bank of Canada), and the Federal Reserve cut their rates by 50 basis points last week. The BOC finally added some commentary to their decision, claiming that they weren’t worried about the real estate market overheating, and that the rate cut would boost consumer confidence. This week, we’ve seen markets around the world take big falls. In the U.S., the Dow fell by over 2,000 points on Monday. In France the CAC fell by over 10%. Tuesday saw a brief recovery but there is profound uncertainty about the long term trajectory of the market. The Bank of Canada has also said that it will not hesitate to cut rates further if the need arises. The Federal Reserve has not yet made such a claim but the President is calling for more stimulus, lower rates, and more proactive leadership from Fed Chair Jerome Powell. COVID-19 is changing the game and intensifying unease and fear around the world.