COVID-19’s Impact on Global Markets
SARS COVID-19, a coronavirus originating from China’s Hubei province has wrought havoc upon the global economy in a remarkably short time.
Having surfaced in late December 2019, it has thus far closed down much of the Chinese economy. Europe is now the global epicenter of the coronavirus pandemic. Business activity in Europe has taken a major hit. It has slowed down to a degree not seen even during the 2008 global economic crisis.
In this article, we take a look at the impact of the pandemic-induced crisis on various sectors of the global economy:
- In Europe, the manufacturing and services sectors are currently in shambles.
- When are the markets likely to bottom? Why do news such as the UK’s lockdown trigger market rallies?
- Covid-19’s impact on the US.
- How a few stocks have been so far affected by the spread of Covid-19
Europe Ravaged by Covid-19, Services, Manufacturing, Energy Prices Suffer
With most of the EU’s 512 million people confined to their homes, the economy of the trading block took an expected nosedive. As the service and manufacturing sectors ground to a halt, energy consumption hit new lows.
The silver lining amid the carnage is the fledgling demand rebound of the Asian energy markets.
Hanns Koenig from Aurora Energy Reasearch said that with gas prices around 8€ “nobody’s making any money”. As far as electric power goes, he pointed out, however, that prices would likely not dip to the 10–15€ levels. At that point, power generation plants would have to shut down.
The price of oil has crashed by 60% and that is just the “tip of the iceberg”. $25 per barrel is a pipedream for sellers at this point. Discounts on actual cargoes are increasing rapidly. What that means is that it is not uncommon to find crude streams changing hands at as little as $10 and $8 per barrel.
In some of the countries hardest-hit by the coronavirus, fuel demand is down by as much as one third. One desperate Italian mayor scolded people about going to the gas station. Why would they need to crowd stations if they are staying home anyway? — he mused.
Durable goods orders held up over February, but over the coming months, Wells Fargo experts expect them to take a plunge as well.
The pandemic transformed consumer trends. People are stocking up on supplies such as water, rice, sugar, and other basics. Fitness equipment and ammo sales are booming as well. Activities tied to coffee roasteries, breweries, amusement parks, kids’ activities, and restaurants are failing.
The virus has tainted everything tied to the economy. It has even upended the retirement plans of people world over.
The stock market took a dive as well. It has, however, put in a few smaller rallies on news such as the British lockdown and the US coronavirus stimulus. Never-ending money printing is the main economy-stimulating tool governments have left, and they have begun abusing it.
When Are the Markets Likely to Bottom?
The stock market is a predictive/discounting entity. It prices in events that are likely to happen. This would explain why a move such as the UK locking up its population, can trigger a rally. Investors expect it to bring forward the eventual end of the current crisis.
According to Goldman Sachs experts, for the current market to curtail its deep-tailed risks, some conditions need to be fulfilled.
- The Covid-19 infection curve needs to “flatten out” in the US and Europe.
- Governments have to deliver substantial stimulus packages all over the world.
- The mitigation of other tail risks.
- A visible “light at the end of the tunnel”. Markets need to gain an idea of the duration and depth of the economic disruption.
Covid 19’s Impact on the US
In the US, markets have been falling since February. The S&P 500 registered a plunge of 17 percent since then. The Dow tumbled and surged, logging a 2,997-point drop, its largest since 1987.
That said, the state of the markets may not paint an accurate picture of the health of the real US economy.
Dropping cargo traffic in LA, the port of entry for some 40% of all US imports, is a much more accurate indicator. And this indicator says that economic contagion from China has reached US shores. Supply may no longer reach the country as quickly as people would like the buy goods.
Regarding growth, CBS analysts estimate a drop from 2 percent to maybe 1.5 percent. The same analysts have tweaked the odds of a US recession to 50–50.
Stock Market Gainers and Loosers
At first glance, ride-sharing is not the industry to thrive amid a viral outbreak. As such, stocks like Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) took a hit during the coronavirus crisis. According to Wells Fargo analysts, Uber stock is now a half-price special.
While this state of affairs may dissuade some investors from considering such stocks, the major price drop has added quite a bit of long-term upside to them. Some investors were quick to act on this upside. That explains why Uber stock saw several recent pumps, even though customer orders are down by some 60% in the US.
Uber and Lyft have traded in tandem lately. Experts have noted, however, that in the current environment, they probably should not.
Both companies rely heavily on ride-sharing. Uber has its Eats service, however, which has seen skyrocketing demand due to the coronavirus pandemic.
In the US, the public has increasingly turned to ride-sharing as an alternative to public transport.
Zoom (NASDAQ: ZM)has been one of the top “coronavirus stocks” of the last few weeks. The online video conference solution of the company has become the darling of remote workers everywhere.
Zoom stock has completed two mini-rallies of 16% each to reach its current price. The company has embarked on expanding data center capacity in response to the increased consumer demand.
Booking Holdings (NASDAQ: BKNG) represents the opposite end of the spectrum from Zoom. With travel “out of style” these days, the company recently withdrew its first-quarter guidance.
Travel demand has fallen significantly in the US and Europe, and with the accelerating spread of the virus, the immediate outlook is dire as well.
Netflix (NASDAQ: NFLX) has outperformed the SNP year-to-date. CNBC analysts say, however, that the stock may not be Covid-proof.
Due to its flat-fee subscription and lack of advertising, Netflix does not benefit from increased viewing hours. The company also has negative free cash flow and junk bond rating.
