There is just no time to take a deep breath as – unexpected – events keep unfolding right in front of our eyes. Finally, when we thought the we can take a break from being concerned about the state of the economy (thanks to the Phase One trade truce between the US and China), the coronavirus muddied the proverbial waters. Developments sped up during the week, as Wuhan, the – alleged – centrum of the epidemic (home to over 11 million people) was quarantined with a number of other Chinese cities to stop the spread of the coronavirus. The virus, first reported in late December 2019, is a contagious respiratory illness that is a close relative of severe acute respiratory syndrome (SARS), which spread in 2002-03. The death toll has been rising (claimed to have reached 80) with a mortality rate just below 3% (at the time of the writing). The virus has already spread overseas, including to Hong Kong, Macau, Singapore, Thailand, the US, etc. At this early stage, it is very difficult to estimate the economic impact of the viral outbreak. We are of the view that the coronavirus could prove to be an important driver of asset prices in the coming weeks (or even months) unless authorities contain it quickly.
Meanwhile, we shall not lose sight of economic fundamentals. According to the CPB Netherlands, world trade volume contracted 1.1% YoY in November. Therefore, it is now highly likely (without knowing the actual December figure) that 2019 was the first year after 2009 when merchandise world trade volume fell – despite industrial production’s low but positive growth in that period. In our interpretation, many EM economies posted promising PMI, industrial activity and foreign trade metrics in November and December, which lead us to conclude that there are signs of a more promising time ahead in 2020 in terms of the global macro big picture.
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