- Europe, US stalls over the virus threat
- Fed cuts rates to 0%, launches QE4
- Watch out for the Chinese data
The darkest macroeconomic scenario is unfolding right ahead of us – the coronavirus spread has taken place and infected not just Asia, but also Europe and the US. Western countries have watched the Chinese problem from outside, being sure that they wouldn’t be affected. Societies ignored first cases and allowed the virus to spread freely. Only now restrictions are being implemented and these restrictions are very serious.
In many European cities – like in Berlin- restrictions have been introduced too slowly. This increases the risk of wider virus spread. Source: Tomtom
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Create account Try a demo Download mobile app Download mobile appWhile the extent of economic damage in Europe and US remains uncertain, we can take China as a guide. We reported before that activity contracted in many sectors by more than 80% y/y during the shutdown. Today’s monthly data shows industrial output down by 13.5% and retail sales down 20% y/y. However, the data is for January and February COMBINED! This means that output most likely dropped by more than 30% and sales close to 50% in February alone. That’s absolutely unprecedented. The good news is that China is genuinely returning to work – the traffic has greatly increased during the last week and this seems to go in line with a quickly declining number of new cases. The bad news is that now demand for the Chinese products will take a hit and weaker China will do little to help other regions.
Watch out for a trick in the data! Recent monthly publications represent 2 months to blur the impact of the virus. Source: Macrobond, XTB Research
Authorities are clearly in the panic mode and seem to be eager to use all the stops that were eventually working during the past crisis. This means massive monetary easing and fiscal support. However, micro management will be even more important. Unless smaller companies are given a helping hand, they could quickly trigger a default chain and make the economic bill so much higher.
Fed to the rescue? In 2008 the FOMC launched the QE at much later stage of the crisis and yet it still took markets nearly 3 months to find the bottom. Source: Macrobond, XTB Research
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