Wall Street about the coronavirus: The implications for the economy and bank’s expectations for the markets

The Chinese deadly virus has brought a valuable lesson that whatever risk forecasts are made for the year, anything can go wrong within days, even hours. By 2020, the Chinese virus is beginning to become a major risk challenge, completely changing Wall Street expectations for the year.

With the spread of the virus, fears of a potential negative economic impact increase. This leads to some nervousness among investors, which showed aggression on Tuesday.

Of course, the situation is closely monitored by major Wall Street players who share their expectations and market views.

Deutsche Bank

Jim Reid, DB Global head research:

“Without underestimating the impact of human tragedy, the death toll of 106 so far versus 80 since yesterday is just a tiny fraction of the hundreds of thousands who die each year of seasonal flu. Many experts believe the biggest problem here is long incubation period without symptoms, making isolation of the virus very difficult and different from SARS SARS had a higher mortality rate – 9.6% versus 2.8% of the coronavirus The Chinese reaction is much faster compared to when SARS was walking, but considering n Watt situation, it is difficult to be analyzed quickly enough. Reading the new data would take weeks, which can slow the findings actually what happens. “

Nordea Investment Funds:

Sebastien Galy, NIF senior macro strategist

“The Chinese economy is slowing down. We may be the only ones to come to this conclusion, but the slowdown is more likely because the rebound in the economy is out of sync. The shock of the virus crisis is expected to reduce the economy’s growth by 1 to 1.5% with a 4.7% growth forecast. Although optimistic about H2, this type of situation is not at all healthy for the global economy. “

Societe Generale

Kit Juckes, chief FX strategist:

“The belief that low interest rates will mitigate the potential negative effects on markets is serious. But there will be an economic impact on the economy of the virus. It is a fact that we do not yet know how long the virus situation will last, and therefore how large it will be. Whatever happens, however, pressure on the Chinese government to ease monetary policy will intensify, which will be sufficient reason for other central banks to remain dovish. “

Pepperstone Group

Chris Weston, head of research:

“What we are trying to understand is the economic impact of stopping transport and logistics and imposing more serious controls on transport in Beijing and Shanghai. As well as the effects of imposing 14 quarantined cities and millions of people who market participants are trying to relate the picture to a situation that is extremely complex, and while this is the hottest topic for now, the fear of the unknown is tightening its grip on the markets, causing risk to be avoided. keeping the numbers infected will be the time when the markets can really take on debt, but the fact is that the incubation period is 14 days. or how much more they can get worse. And how do we fully assess the consequences of this risk when we don’t see the whole picture? Not only in terms of proliferation, but also in the effects on the economy, which may come weeks even months after the crisis has subsided. “

TD Securities

Priya Misra, head of global rates strategy:

“Still uncertainty about how the virus is transmitted and whether it can be modified again is high, which continues to hold nail markets. We have eliminated our long position of 10-year government securities at a yield of 1.6% because of the risk-reward ratio already not so good considering news driven markets. However, bonds remain a good risk – off hedge. “


Richard McGuire, head of rates strategy:

“The immeasurable (so-called Knightian risk) threat posed by the coronavirus has led a number of analysts to make recommendations that investors subsequently ignore completely. As far as we can tell, these recommendations stem from a comparison of the effects of the SARS crisis in 2002. – 2003. Such comparisons are not relevant in this case because of the vastly improved methodologies used by China to respond to virus threats, the apparent safe haven status of peripheral bonds offers investors protection against asymmetric risk, even at a time when Almost nothing is known about the virus.If the virus is controlled quickly we will see a sharp reversal of market sentiment, which will support EZ sovereign bonds with high beta. Conversely, the yield on safe bonds will continue to fall, causing investors to look for assets with higher yield “.

Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.

 Trader Martin Nikolov

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