Wall Street indices are trading around all-time highs, as investors have evidently decided to focus more on what’s positive in the US economy, ignoring geopolitical and global economic uncertainties. Brexit, US elections, tensions with Iran and of course the Coronavirus will all impact the American economy, depending on their respective outcomes.
The full economic impact of the Coronavirus will greatly depend on how quickly the Chinese government can contain it. As at the time of writing, out of more than 72,000 people have been infected by the Coronavirus, 1,800 of those have died.
Of course, it’s too early to predict how long the situation in China will last, or forecast what the exact impact of the coronavirus on the American economy will be. However, such uncertainties are surely playing on investor fears, triggering wild bullish and bearish movements.
While this is great news for those trading CFDs and other derivatives, longer term investors should be prepared for a potential change in trend, especially as Wall Street indices are recording their biggest bullish cycle ever.
IMF – The Covid-19 will be a threat to global economic growth in 2020
“There may be a cut that we are still hoping would be in the 0.1-0.2 percentage space,” declared the managing director of the International Monetary Fund (IMF), Kristalina Georgieva.
In its World Economic Outlook of January, the IMF lowered their global economic growth forecast by 0.1 percentage point to 3.3% this year, following 2.9% growth in 2019 (the lowest in a decade).
“Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity—especially manufacturing and trade—in the second half of 2019” explains the report.
Manufacturing, tourism, transportation and trade are already impacted by the Coronavirus
Measures taken to tackle the virus are tangibly impacting China’s economy, as well as disrupting the supply chains of many sectors, such as car parts manufacturers and industrial equipment producers.
Major American companies with important manufacturing facilities in the region, such as Apple and Walmart, have already warned that their supply chain is at risk. These companies, who are bringing items into the US from China, are increasingly worried about production, as well as distribution.
In addition to supply shortages, the virus is also impacting the tourism and transportation sectors, as many countries refuse to fly to China. The number of Chinese tourists visiting other countries is also falling. Chinese tourism had become increasingly important in recent years for US growth.
Demand from within China itself is also slowing down, affecting many US companies, especially in the electronics and fashion industry, as China is one of the most important markets for American products.
Major worldwide events have already been cancelled around the world, such as the fair of the mobile and communications industry GSMA Mobile World Congress (MWC) in Barcelona. A major Beijing auto show has also been cancelled, while Japan is worried about its Olympic Games this summer.
While the virus is spreading across Asia, as well as in Europe and North Africa, few deaths have been reported outside China. The Chinese government is implementing extensive measures (such as quarantines) to stop the Codiv-19 from spreading even further.
These measures will definitely have negative consequences for the Chinese economy, as well as its trading partners, not to mention countries heavily relying on the manufacturing facilities in China.
Of course, it is too early to talk about the full impact of the virus, “because we don’t yet quite know what is the nature of this virus. We don’t know how quickly China will be able to contain it. We don’t know whether it will spread to the rest of the world,” declared Kristalina Georgieva.
Market participant fears in front of such uncertainty will definitely trigger strong price movements in the main American indices in the coming days and weeks, depending on the unfolding developments on the Coronavirus.
To protect yourself from unpredictable events such as the Coronavirus, it’s always important to protect your capital with risk management techniques such as stop-loss orders. You can also diversify your portfolio to avoid being overexposed to the US economy by investing in foreign markets.