Global fear escalated on Monday as investors continue to gauge the severity of the latest coronavirus (2019-nCoV) and its spread globally. The risk-off sentiment comes amid concerns over the impact on the global economy as the SARS epidemic did back in 2003. There are currently nearly 3,000 people who have contracted the virus, with the vast majority in China. The death toll has risen to at least 80 people, all within China, as of this morning or about 2.67% of the impacted population. Comparatively, fatalities in SARS patients were estimated to be upwards to 15%, according to the World Health Organization. In a bid to safe-haven assets, S&P 500 futures point to a -1.68% drop at the open and 10-year U.S. Treasuries are down 7.5bps to 1.605%. WTI crude oil is down 2.66% to $52.755 bbl.
Last week, global leaders converged at Davos, Switzerland for the annual World Economic Forum where environmental issues were the topic of choice for the first time ever. The delegates were confident that the global economy will stabilize this year. Should the economy slow down, many delegates agreed that fiscal government policy, rather than monetary policies from central banks, should intervene to provide support. While disheartened over Trump’s protectionist policies, some global leaders expect that if President Trump were to win re-election there will continue to be low taxes and light regulation (including environmental). President Trump took the speaking opportunity to hint at the next phase of the global trade war.
US-EU Trade War?
- The U.S. is shifting its focus towards the United Kingdom (UK) and European Union (EU), after the signing of both the U.S. and China trade agreement and the United States-Mexico-Canada Agreement (NAFTA 2.0).
- On the agenda is for the UK to relax its food safety standards and purchase hormone-treated beef and chlorinated chicken and allow U.S. pharmaceutical companies to bid on National Health Service (NHS) contracts.
- In the EU, the U.S. is threatening auto tariffs and wants to get rid of the digital tax on American technology companies.
- Stemming from the Airbus dispute, the U.S. has tariffs on French wine, Italian cheeses, and other EU goods.
- The EU’s efforts to combat climate change include carbon taxes on imports from the U.S.
The U.S. Economy
- Last week brought generally positive news.
- Existing home sales climbed to an annualized +5.5 million in December, a two-year high.
- While the Markit manufacturing PMI edged lower to 51.7 in January, from 52.4, the services PMI climbed to a 10-month high of 53.2, from 52.8.
- The data is consistent with GDP growth of an annualized 2.0%.
Key events coming up this week:
- December’s durable goods report due on Monday.
- December’s advance economic indicators report due on Tuesday.
- FOMC meeting and rate decision due on Wednesday at 2 PM EST.
- Earnings from 145 companies in the S&P 500 continue throughout the week, with the bulk reporting on Wednesday and Thursday.
- The Bank of England meeting and rate decision due on Thursday.
- Brexit – The UK is set to leave the EU on Friday (pending approval by the EU Parliament).
