World Equities Tumble on Latest Coronavirus Updates and Rising Cases Outside China

Posted on 02/24/2020 6:08 AM

Sanders has big win in more diverse Nevada; Biden gets second

In today's updates:

* Coronavirus impact: China postpones its most important political gathering of the year
* Coronavirus outbreak is starting to rattle markets
* Rapid spread of coronavirus in South Korea is bleak news for global manufacturers
* G20: Fast-spreading coronavirus posed a serious risk to global growth
* IMF cuts China’s annual growth forecast by 0.4 percentage point to 5.6%
* Navarro: Coronavirus shows U.S. offshored too much of its supply chain
* Focus Friday on China's factory activity, or lack of it
* More observers note China failed to build modern health-care system*
* China: Pork supplies tight and prices record-high as many cannot market hogs
* Nevada was blowout win for Bernie Sanders, revealing scale of his coalition
* Trump in India: Big crowds, but no big trade accord
* China faces March 14 deadline to take actions to open its market to U.S. beef exports
* China lifts ag restrictions on U.S. beef
* Doud: Phase 1 accord contains more than 50 ag market-opening commitments
* Coronavirus has forced USDA to cancel a trade mission to China
* Doud again focuses on EU food market restrictions
* Did Russia pull a fast one on Saudi Arabia in OPEC+ agreement on production cuts?
* Lowest prices for crude oil & natural gas in years helping cushion blow of coronavirus
* Probability of three Fed rate cuts this year is back above 70%
* Mnuchin to South Korea: no currency-related tariffs

Markets: European and U.S. equity futures sank alongside Asian shares as China initially announced it would ease some restrictions in Wuhan, even though the coronavirus spread further in Asia and parts of Europe (Chinese authorities reported that only 11 new cases had been discovered outside Hubei on Sunday, which would suggest the spread of the virus had slowed in the rest of the country). However, three hours after the initial announcement of easing restrictions in Wuhan, the decision was reversed. Seoul’s Kospi sustained a severe blow, falling 3.9% — its worst day since late 2018 — after South Korea raised its infectious disease alert to its highest level for the first time in a decade. Italy imposed a strict quarantine across at least 10 towns, as authorities battled to contain the biggest outbreak of the virus outside Asia. Robert Carnell, chief Asia-Pacific economist at ING, said: “Markets [are] likely to show extreme caution in the face of [the] global spread of the coronavirus — this is no longer solely an Asia issue.” Meanwhile, VIX futures are up sharply, the 10-year yield slid to 1.38% and oil tumbled as the dollar rose.

China virus cases

Cargill is launching plant-based hamburger patties and ground "fake meat" products in April. Competitors like Beyond Meat, Impossible Foods, Tyson Foods and Nestle are watching moves into the sector. "We believe we're uniquely positioned to be very effective and efficient in the supply chain," said Elizabeth Gutschenritter, managing director of Cargill's alternative protein team.


Coronavirus update:

  • China postpones its most important political gathering of the year, as coronavirus outbreak disrupts leader Xi Jinping’s agenda. The annual legislative session was due to begin on March 5 but would be delayed, the National People's Congress Standing Committee decided at a meeting in Beijing today. It did not set a new date, saying it would be decided later. Xi told thousands of Chinese government and Communist party officials on Sunday that the epidemic was the “most difficult” public health challenge the party had faced, and that it had also exposed “obvious shortcomings” in governance. The official Xinhua news agency noted the meeting was broadcast to all county governments and military units across the country.
  • The coronavirus outbreak is starting to rattle... asset markets and should keep weighing on commodities’ demand,” said Aakash Doshi, head of commodities research in North America at Citigroup. “If virus risks keep spreading outside of China, causing broader downturns in equities and [corporate bond] markets, commodities’ prices should face further short-term headwinds.”

    China and the world

  • Rapid spread of coronavirus in South Korea is bleak news for global manufacturers. South Korea’s exports are equivalent to 44% of its GDP, second only to Germany among major advanced economies. But a Wall Street Journal article (link) notes that even that understates its importance: Its overwhelming specialty is intermediate goods required by other manufacturers. Such goods make up around 55% of Germany’s exports, 62% of China’s — but 90% of South Korea’s. The country has a commanding position in electronics, dominating some categories of semiconductors and displays. So, any industrial shutdowns designed to slow the spread of coronavirus will be felt immediately elsewhere, the article concludes.

    China's indirect impacts

  • Group of 20 major economies warned Sunday the fast-spreading coronavirus posed a serious risk to global growth. Finance ministers and central bankers discussed the virus, alongside trade and geopolitical tensions, at a weekend meeting in Riyadh, Saudi Arabia. The officials didn’t outline specific joint measures to tackle the outbreak of Covid-19 in a post-meeting communiqué, but said the virus was central to discussions and agreed to monitor its spread.
  • International Monetary Fund cuts China’s annual growth forecast by 0.4 percentage point to 5.6%, versus the fund’s pre-virus prediction in January. The slower growth would shave 0.1 percentage point off of global output.

    IMF lowers China GDP

  • White House trade adviser Peter Navarro says the coronavirus crisis shows, “not surprisingly,” that the U.S. has offshored too much of its supply chain. Navarro expressed confidence on Fox’s Sunday Morning Futures, saying the “American economy is exceedingly strong and not particularly vulnerable to what happens in China.” He emphasized his goal to bring more of the U.S. supply chain home. “A lot of it is in China, some of it is in India, some in Europe, but we’ve got to get that back on shore,” he said.
  • This Friday, China’s factory activity is likely to show a notable impact from the coronavirus epidemic. China’s official purchasing managers index, released on Saturday morning in China, is forecast to drop to 45 in February from January’s 50, according to economists surveyed by the Wall Street Journal. Readings below 50 indicate a contraction. The forecasted reading would be the lowest since the global financial crisis in 2008.
  • Key conclusion regarding coronavirus may be China's failure to build a modern health-care system, say some China watchers.
  • The World Health Organization (WHO) has not yet declared the coronavirus a pandemic, as it did with the H1N1 influenza outbreak in 2009. But WHO chief Tedros Adhanom Ghebreyesus warned last Friday that the “window of opportunity is narrowing” to contain the epidemic. Health experts are particularly concerned by untraceable virus clusters beyond China — marking a different phase of the virus outbreak.
  • China's ag ministry claims the sow inventory is rebounding following more than a year of steep declines, but the Ministry has stopped issuing statistical reports since October 2019. But supplies are tight and prices are record-high as many villagers cannot market their hogs and only a few slaughterhouses are in operation. Yang Zhenhai, director of the livestock industry and veterinary bureau, acknowledged that land and credit are still problems blocking pig farm expansion in some localities. He noted that pork supplies have been constrained by coronavirus quarantines and lockdowns that have disrupted transportation of feed and breeding pigs and prevented farms from supplying hogs to slaughterhouses. With tight supplies, prices of pork, hogs, and feeder pigs continued to rise in February, according to wholesale prices reported by the agriculture ministry. The increases were counter to the usual pattern of declining prices after the Chinese New Year holiday.

    China pork

U.S./China trade policy update:

  • China faces a March 14 deadline to take several actions to open its market to U.S. beef exports, Chief U.S. Agricultural Negotiator Gregg Doud said Friday at USDA's Ag Outlook Forum. Following that, it will probably be about 60 days before the “first U.S. beef arrives in China,” he added. (See next item for a related development.)
  • China lifts ag restrictions on U.S. beef. China has conditionally lifted its ban on imports of U.S. beef/products from animals more than 30 months of age, according to a notice from the Chinese General Administration of Customs Office. The notice said that inspection and quarantine requirements would be released separately. The action is one of the moves that China agreed to make as part of the Phase 1 agreement with the United States.
  • Phase 1 accord contains more than 50 agricultural market-opening commitments that will be implemented over the coming year on various deadlines. So far China has lifted its ban on all U.S. poultry, including live birds, and its ban on pet food containing ruminant material, Doud said. The two sides have also agreed on U.S. facilities allowed to export dairy, infant formula and pet food to China, as well as additional measures needed for U.S. potato, live cattle and seafood exports. “It’s working,” Doud said. “Much, much better relationship than we’ve had.”
  • Coronavirus has forced USDA to cancel a trade mission to China that was scheduled for the coming weeks, USDA Undersecretary Ted McKinney said at the USDA conference. But USDA intends to go when conditions are better, and hopes to make repeated visits this year, he added. Other USDA trade missions are also planned in 2020 for North Africa, the Philippines, Spain and Portugal, the United Kingdom and Ireland, Australia and New Zealand, Peru and the United Arab Emirates, McKinney said.

Sanders scored a big win in more diverse Nevada, cementing his status as the front-runner for the Democratic presidential nomination. Establishment Democrats are now looking to Saturday's presidential primary in South Carolina and then on Super Tuesday on March 3 when 14 states vote, and one-third of the delegates are awarded. A strong showing in those states could put Sanders on a glide path to the nomination against Republican President Donald Trump.

     Sanders' rise has amplified concerns for Democrats who believe his liberal policies will drive away moderate and independent voters in the general election in November. South Carolina Rep. Jim Clyburn, the top-ranking black leader in Congress, warned of added risk for Democrats if Sanders was the nominee. “I think it would be a real burden for us in these states or congressional districts that we have to do well in,” Clyburn told This Week on ABC. He noted that congressional districts that helped Democrats win back the House are moderate and conservative. “In those districts, it’s going to be tough to hold on to these jobs if you have to make the case for accepting a self-proclaimed democratic socialist,” Clyburn said.

     Sanders’ campaign argues the candidate will bring in new voters — largely progressives, young people and voters of color — who have been alienated by politics. “Our multiracial, multigenerational movement is not only going to win in Nevada. It is going to sweep this country,” Sanders tweeted on Saturday night. In the under-thirty age group, Sanders in Nevada got 66% of the vote; in the under-forty-five group, he got 45%. No other candidate got more than 17% of the vote in either of these demographics. Just over half of the caucusgoers were women, according to the entrance poll. Sanders won 30% of their vote, while Joe Biden got 16%, and Pete Buttigieg and Amy Klobuchar got 14% and 12%, respectively. Among men, Sanders did even better, earning 38% of the vote, way ahead of Buttigieg, with 16%, and Biden, with 15%. Regarding the Latino vote, which made up about a fifth of voters, Sanders got more half of the vote — 53% — while Biden got just 16%. This success reflected an extensive effort by the Sanders campaign to reach out to Hispanic voters, and it augurs well for his prospects in other states with large Latino populations.

     None of Sanders’ less liberal opponents were suggesting they were ready to exit the race, regardless of diminishing funds and an increasingly narrow path to the nomination. “The other candidates hardly have bus fare to get to South Carolina,” said Charlie Cook, editor of the non-partisan Cook Political Report. This assessment does not apply to Mike Bloomberg, who did not compete in the Nevada contest and will only be on the ballot for the first time on Super Tuesday, March 3.

     The online betting and prediction markets were putting Sanders chances at getting the nomination at more than 50%.

     Outlook: Biden is ahead in the South Carolina polls. Should he win, and by a convincing margin, that could finally give him some momentum going into the delegate-rich Super Tuesday events. But time is running out for any candidate to challenge the surging Sanders. The March 3 primaries will also mean several current candidates will fold after results are known. The next presidential debate is on Feb. 25 in the Palmetto state’s largest city — Charleston.

     Bottom line from a WSJ editorial: “Democrats are waking to the prospect of a nominee who wants to eliminate private health insurance, raise taxes on the middle class, ban fracking and put government in charge of energy production, make college a taxpayer entitlement, offer free health care to illegal immigrants, raise spending by $50 trillion, and tag every down-ballot Democrat with the socialist label. All of these are political vulnerabilities, but Republicans shouldn’t be too sanguine that Sanders would be an easy November mark. A majority of Americans aren’t socialist, at least not yet, but the country is closely divided politically. Democrats and the media will close ranks behind Sanders as an alternative to the incumbent."

Other items of note:

  • Trump in India: Big crowds, but no big trade agreement. The U.S. will sign military deals worth more than $3 billion with India on Tuesday, President Donald Trump said at the start of a two-day state visit to the country. 'We make the greatest weapons ever made. Airplanes. Missiles. Rockets. Ships. We make the best and we’re dealing now with India. But this includes advanced air-defense systems and armed and unarmed aerial vehicles,” Trump told a cheering crowd at the western Indian city of Ahmedabad on Monday as he shared the stage with India’s Prime Minister Narendra Modi. Last week, India’s cabinet cleared $2.6 billion purchase from Lockheed Martin Corp. of 24 multi-role MH-60R Seahawk maritime helicopters to Indian navy. The State Department has also approved a potential sale to India of $1.8 billion in arms, including air-defense radars and missiles, rifles and other equipment, the U.S. Defense Security Cooperation Agency announced. Trump reiterated his pledge that the U.S. would make a significant trade deal with India. “We are in the early stages of discussion for an incredible trade agreement to reduce barriers of investment between the United States and India,” he said. “And I am optimistic that, working together, the prime minister and I can reach a fantastic deal that’s good and even great for both of our countries.” He gave no time line for a deal. Officials have tried to reach a modest trade deal opening up India to U.S. agricultural products and medical devices in return for the restoration of preferential export status that Trump stripped from India in 2019. In 2018-19, India had a nearly $17 billion trade surplus with the United States.

    Crowd in India for Trump visit

  • USTR Chief Ag Negotiator Doud again focuses on EU food market restrictions. At USDA's Ag Outlook Forum last Friday, Doud clearly was frustrate over European Union regulations and statements that brand American food as "unsafe," predicting difficult trade talks ahead. "We know the Europeans in agriculture are protectionist," he said during the conference. "They have been for a very, very long time. But it’s something else to say our products are unsafe and that’s where we draw the line, and that’s where this conversation is going to get pretty serious." European negotiators want the U.S. to drop tariffs on farm exports from the bloc like olives, wine and cheese. They’re hoping for an agreement by March 18. Meanwhile, Doud also said trade negotiations between the U.S. and United Kingdom could start within “a matter of weeks.”

Markets. Did Russia pull a fast one on Saudi Arabia in the OPEC+ agreement on production cuts? Some observers think so. Russia's oil production has kept rising year on year, while Saudi Arabia has made significant cuts.

     Some of the lowest prices for crude oil and natural gas in years are saving many Americans money, and could help cushion the U.S. from the economic fallout related to the coronavirus. Link to WSJ article.

     Gas price drop

     The probability of three Fed rate cuts this year is back above 70%.

     Mnuchin to South Korea: no currency-related tariffs. South Korea doesn’t need to be concerned about the possibility of the U.S. imposing of countervailing duties linked to an undervalued currency, the Asian nation’s finance ministry said, citing comments by U.S. Treasury Secretary Steven Mnuchin. Mnuchin met South Korea’s Finance Minister Hong Nam-ki at the sidelines of a G20 meeting in Saudi Arabia on Saturday. Hong had requested the U.S. give detailed and objective guidelines to determine the undervaluation of a currency, while emphasizing South Korea has been making efforts to improve transparency for its foreign exchange policies, the finance ministry said. The U.S. Dept. of Commerce earlier this month revealed a final regulation for imposing countervailing duties on products that benefit from unfair currency subsidies.


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