A new respiratory virus first detected in the Chinese city of Wuhan has infected hundreds of Chinese citizens and claimed a number of lives. Just three of the 41 deaths reported over all have taken place outside of Wuhan. Nationwide, more than 400 new cases of the virus were diagnosed, officials said early Saturday, bringing the total number of confirmed cases in China to nearly 1,300. The fast-spreading infection, which causes pneumonia-like symptoms, has prompted Chinese authorities to quarantine several major cities and cancel some Lunar New Year events.
Early estimates suggest the epidemic could reduce China’s projected 2020 growth rate by 0.5% to 1%. The Shanghai Composite Index was sharply down over the week as tourism, airline, and gaming stocks bore the brunt of the selling. Oil prices were also impacted declining the most in a year as investors worried that the outbreak could result in lower demand for fuel.
The European Central Bank (ECB) on Thursday held interest rates steady (-0.5%) as it launched its first strategic review since 2003, in a bid to establish whether its inflation target is still appropriate. The ECB’s strategic review will assess its formulation of price stability, monetary policy toolkit, economic and monetary analyses and communication practices.
On Friday Prime Minster Boris Johnson signed the Brexit withdrawal agreement in Downing Street. The European Parliament will vote on the agreement on 29 January with the vote all but a formality, after it was backed by the EU’s parliament's constitutional affairs committee on Thursday. Negotiations will then begin on the future relationship between the UK and the EU. Senior EU figures are sceptical about the UK government's plan to negotiate a comprehensive deal on future relations before the end of 2020. They believe the timetable for that is too tight.
For the week, global markets underperformed on fears of the coronavirus outbreak and its potential impact on global growth. In the U.S., the Dow Jones (-1.2%), S&P 500 (-1.0%) and Nasdaq (-0.8%) were all down on the week, similarly European and Asian markets were lower with the Euro Stoxx 50 (-0.7%), FTSE 100 (-1.15%), Nikkei 225 (-0.9%) and the Shanghai Composite (-3.22%) Index all ending the week in negative territory.
Market Moves of the Week
The JSE concluded its worst week of the new year on Friday as fears that China’s coronavirus could turn into a pandemic hurt market sentiment. The local bourse picked up on Friday after ending the previous four days in negative territory. The rand managed to dodge much of the global risk-off environment, ending the week 0.4% firmer against the dollar.
In company news Sasol said on Friday that the damage from an explosion that occurred earlier in January at its Lake Charles facility seems to be limited to a small portion of the low-density polyethylene unit. The share price responded positively to the news.
The broader All-Share Index ended the week down 2.95%, with all the major sectors negative over the week.
Chart of the Week
Shaded area represents SARS outbreak in April-May 2003. Source: NBS, CEIC, Goldman Sachs Global Investment Research.
SARS (severe acute respiratory syndrome) in 2003 cut Chinese GDP by 0.8-2.0 percentage points and east Asian by 0.5 pp. Considering that Chinese outbound tourism has risen 8-fold since 2003 and that China is a much bigger chunk of global GDP and demand the potential impact on global growth could be more severe with the Coronavirus outbreak.
2003 SARS OUTBREAK
China retail sales (lhs); China industrial production (rhs), percent change yoy