Number of Coronavirus Cases Much Higher Than Originally Reported

Posted on 02/13/2020 6:25 AM

Mnuchin: China deal implementation slowed due to coronavirus

 

In today's updates:

 

* Mnuchin: China deal implementation slowed due to coronavirus
* Chinese officials in March are expected to ask for consultations re: Phase 1
* China ousts high-level officials as coronavirus cases soar
*
China will still push to meet economic targets in 2020 despite the coronavirus situation
* Over 80% of China’s state-owned enterprises resumed production as of Feb. 12
* Coronavirus has weighed on demand for some products, produced rally in others
* Farm credit leader: Too early for MFP 3 decision, cautiously upbeat on ag sector
* Bayer looks to settle lawsuits over Roundup — while still selling it
* Ecuador next in line for trade agreement with U.S.
* Federal budget deficit grew 25% in the first four months of the fiscal year

* IEA: Oil demand is set to fall in the first quarter of 2020 vs year ago
* EU stuck to its outlook for subdued but stable growth in the coming two years

 

Markets: Asian stocks dipped as traders digested the news that the number of coronavirus cases is much higher than originally reported after patients tested using a different method are included. U.S. equity markets are signaling hefty losses.

 

Euro hits weakest level since 2017. Worries about the European economy emerged on Wednesday as the euro fell to its weakest level against the dollar since 2017, dropping as much as 0.4% to $1.0877. On top of a weakened economy, impacts from the coronavirus are likely to send Germany into recession, while Deutsche Bank expects to post a contraction in the fourth quarter. Also weighing on sentiment is a lingering succession battle at the top of the German government, a slump in eurozone industrial output and fears about the financial health of Italy.

 

OPEC has slashed its demand forecast in its monthly report on the oil market, primarily due to the shutdowns caused by the virus outbreak hitting demand for fuel in China.

 

 

— U.S./China trade policy update:

  • Mnuchin: China deal implementation slowed due to coronavirus. Treasury Sec. Steven Mnuchin spoke about the Phase 1 China deal in testimony Wednesday before the Senate. He said implementation “to a certain extent slowed down” as a result of the ongoing coronavirus outbreak. But he said it would take another two to four weeks of data to evaluate the impact of the epidemic on the Chinese economy.
     
  • Chinese officials sometime in March are expected to ask for consultations on delaying, not canceling, purchase commitments of the Phase 1 agreement. This discounts some news services quoting various Trump administration officials saying they have not yet received such requests.

— Coronavirus update:

  • Health experts accused China of under-reporting coronavirus cases in the country, saying authorities were conducting inadequate testing and medical facilities were overwhelmed. The accusations come as authorities in Hubei, the province at the center of the outbreak, reported a nearly tenfold increase in new cases and a death toll that was more than two times greater than the previous daily count. The coronavirus tests correctly detected positive results just 20% to 30% of the time, Tong Chaohui, a medical expert advising the government, told reporters. Better hospitals could reach a 50% rate of detection but poor ones might have rates as low as 10%, he added.
     
  • The 15,000 new coronavirus infections in China calibrated using a new CT scan detection method, rather than confirmation via slower ribonucleic acid tests, brings the national total to just over 60,000 cases, prompting China to replace its top officials in the central province of Hubei and its capital, Wuhan. While non-China deaths linked to COVID-19 still remain very low, WHO Director General Tedros Adhanom Ghebreyesus warned the outbreak "could still go in any direction." China's confirmed 15,152 new coronavirus cases and 254 additional deaths brings the country's total death toll to 1,367 as the number of people infected hit 59,804.
     
  • China will still push to meet economic targets in 2020 despite the coronavirus situation, according to a report by state-run CCTV. Each province has been called on to design measures to curb the spread of the virus, the report said, referencing a meeting headed by Premier Li Keqiang.
     
  • Over 80% of China’s state-owned enterprises (SOEs) had resumed production as of Feb. 12, according to Zhao Shitang, deputy secretary-general of the State-owned Assets Supervision and Administration Commission of the State Council. "The rate for central SOEs operating power generation and power grid businesses amounted to over 83%," he said, noting that in supporting industries, such as petroleum and petrochemicals, central SOEs' work resumption rate has reached 97%, according to a China Daily report. He also stated that some essential industries involving central SOEs, such as coal, oil and gas, communications, food and living material supplies, have no problem either resuming production or raising work efficiency.
     
  • China Iron and Steel Association (CISA) called on the Ministry of Transport to take “forceful measures” to make sure that steel mills have adequate transportation to keep their operations going, according to Reuters. The “extreme measures” taken to fight the virus have impacts the ability of mills to get raw materials and ship finished steel. Stocks of finished steel were up 17.3 percent from the prior week as of Feb. 13, according to the Mysteel consultancy, and some mills indicated they had 10 days or less of raw materials.
     
  • ChemChina has now reduced its refinery output, shutting down the crude oil unit at its Zhenghe refinery in Shandong province that has capacity of five million tonnes per year, according to Reuters, and has reduced output at two other plants. The reductions by ChemChina and other refiners are said to total 1.5 million barrels per day (BPD).
     
  • Coronavirus outbreak has weighed on demand for crude oil, copper and soybeans. But it's prompting a rally in some niche commodity markets.

    Virus and markets
     
  • China’s coronavirus outbreak will likely dampen U.S. economic growth in the first quarter, according to a survey of economists by the Wall Street Journal (link). More than 80% of economists expected the virus will have a small impact on U.S. gross domestic product growth from January to March, or less than 0.5 percentage point. Just 5% of forecasters expected a significant reduction of more than 0.5 percentage point off the quarter’s annual growth rate, while 10% expected no impact,

    Economic risks
     
  • The EU discusses Covid-19. European Union health ministers are meeting in Brussels for emergency talks, with the disease spreading rapidly. Germany has 16 cases of the novel coronavirus, the highest number in the region.

— Farm credit leader: Too early for MFP 3 decision, cautiously upbeat on ag sector. The CEO of the Farm Credit Administration is “cautiously optimistic” the financial picture for agriculture could improve this year as trade agreements enter into force and interest rates are expected to remain low. “It may take patience, but at least the groundwork has been laid for trade normalization and improved farm prices,” Glen R. Smith, who heads the Farm Credit Administration, testified Wednesday before the House Agriculture Appropriations Subcommittee. Smith and Jeffery S. Hall, a Farm Credit Administration board member, appeared before the subcommittee regarding the independent agency’s fiscal 2021 budget request of $81 million. Congress approved $77 million for the Farm Credit Administration for fiscal 2020, with a provision that allows it to exceed that level by 10% with notification to the committees of jurisdiction. Congress doesn't appropriate money for the Farm Credit Administration, but it does approve the level of funding it can raise from assessments on financial institutions and the Federal Agricultural Mortgage Corp. (Farmer Mac), and payments for work done for the Farm Credit System Insurance Corp., USDA and the National Consumer Cooperative Bank.

 

     Trade agreements noted. Smith said the U.S.-Japan mini-trade deal, the U.S.-Mexico-Canada Agreement (USMCA) and the U.S./China Phase 1 trade deal offer opportunities for more foreign sales and expanded markets. But for now, Smith said, futures markets seem to be have taken a “show me” position that is unlikely to change until major crops are harvested and sold in the fall.

 

     Smith said his agency is tracking the quality of loans made by the financial institutions it regulates as borrowers see their equity shrink and debts rise. In the third quarter of 2019, Smith said the share of adverse loan quality was 7.4%. Farm Credit System data show that share was at 6.6% at the end of 2018. Nonperforming loans for the same period remained below 1% while delinquent loans were at 0.3%. “We are watching the trend closely because it does represent a four- to five-year trend of decreasing loan quality,” Smith said.

 

     Smith said it’s way too early to know whether another round of Market Facilitation Program payments are needed this year. Some farmers and others say the question should be if commodity prices do not rally significantly, no MFP for 2020 would significantly erode already diminished working capital and could begin negatively impacting land values and other ag sector financial implications.

 

— Other items of note:

  • Bayer looks to settle lawsuits over Roundup — while still selling it. The German company faces tens of thousands of claims that its weedkiller causes cancer even as the product remains on the shelves, making it almost impossible for Bayer to put the litigation to rest forever, legal experts say. Link to WSJ article.
     
  • Ecuador next in line for trade agreement with U.S., President Trump said Wednesday during a press conference with visiting Ecuadorian President Lenin Moreno. The U.S. is Ecuador’s largest trading partner and the U.S. exported about $381 million worth of agricultural goods to Ecuador in 2018.

— Markets. All three major indices finished Wednesday at record levels. The Dow gained 276.08 points, 0.94%, at 29,551.42. The Nasdaq was up 87.02 points, 0.90%, at 9,725.96. The S&P 500 rose 21.70 points, 0.65%, at 3,379.45.

 

     Treasury Department data showed the federal government post a budget deficit of $389.2 billion in the first four months of fiscal 2020. That's a 25% gain over the same period last year and already about 40% of the total deficit for fiscal 2019. That figure was exaggerated by a quirk in the calendar that brought forward payments of federal benefits, such as veteran and retiree benefits. Tax receipts are actually on the rise comparatively, but the rate of federal outlays is adding to the shortfall, bringing the total national debt to $23.3 trillion.

    
Deficits

 

     The International Energy Agency (EIA) said oil demand is set to fall in the first quarter of 2020 compared with year ago for the first time since the 2009 financial crisis. "Global oil demand has been hit hard by the novel coronavirus (Covid-19) and the widespread shutdown of China’s economy,” IEA said. “Demand is now expected to fall by 435,000 barrels per day (bpd), year over year, in 1Q 20, the first quarterly contraction in more than 10 years.” IEA cut its 2020 demand growth forecast by 365,000 bpd, the lowest since 2011. Forecast refinery runs are also seen down, with IEA reducing them by 1.1 million bpd, and they are now expected to fall by 0.5 million bpd year over year. That is expected to result in an increase in global runs of just 0.7 million bpd, IEA said.

 

     Brent futures

 

     The European Union stuck to its outlook for subdued but stable growth in the coming two years. Gross domestic product in the 19-member eurozone should grow 1.2% in both 2020 and 2021, the EU said. One emerging risk: coronavirus. "The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The longer it lasts, however, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions," the European Commission said in its forecast.

 

     Eurozone forecasts


 

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