The Tribune

ACTIVTRADES WEEKLY

By Ricardo Evangelista

www.activtrades.bs

The coronavirus crisis shows no sign of abating and the declaration of a global pandemic, by the World Health Organisation, is imminent. Person to person transmission is now documented across several countries, with some cases, notably in the US, where the source of the infection is unclear, leading to the assumption that the virus is circulating within the community and damping hopes of a quick containment.

Should the disease become a global pandemic, the worst-case scenarios circulating in the press make grim reading. On Wednesday, February 26 a UK government document was leaked to the press; the worst-case scenario points to an infection rate of 80 percent among the population, which, assuming a mortality rate of two percent, will translate into half a million fatalities in the United Kingdom alone.

It is, therefore, not surprising the financial markets reacted to the latest developments in such dramatic fashion; the coronavirus triggered the fastest stock market correction of all time. The S&P 500 lost more than 10 percent of its value in less than a week. It went from an all time high reached on February 19 to a loss of 12 percent, all within six trading days. This most remarkable correction illustrates how the markets are worried, which in turn signals the gravity of the situation. Similar patterns can be found across the globe, with equally pronounced falls for the FTSE, the DAX and several Asian indices, to mention but a few.

But it's not just stocks that suffered the impact caused by the change in sentiment, the flight to safety is generalised with investors seeking to alienate position in risk related assets and bidding for the traditional safe havens; The US dollar lost more than 3.5 percent to the Japanese yen during the last six trading sessions; at the same time American treasuries rallied, recording gains of almost five percent.

The duration and severity of the epidemic is still unknown, and this is why the markets are reacting in such a manner; there is nothing investors fear more than uncertainty.

I will finish this article by briefly looking at the impact the crisis is having in the real economy. It appears to be very likely that the efforts to contain the disease will continue to dampen the prospects for the growth of the world's economy, with a global recession in the first quarter of 2020 now being the base case for many analysts. Entire industries are being brought to a standstill, with traveling being one of the activities more strongly affected by the situation; business and leisure travellers are cancelling flights and hotel rooms, in a scenario which could be worrying for The Bahamas' tourism industry.

At some point in the next few weeks it is likely that authorities across the globe will move from a strategy of containment, to one of management of the disease. At least until then, the financial markets debacle, as well as the impact of the restrictions over the real economy, will probably continue.