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Happy Friday, Bull Sheeters. “Uncertainty” is the word of the day, reflected in the schizophrenic daily swings of the global markets. As I type, Asia is mixed, Europe, after a decent start, is down, as are the U.S. futures.
Tonight, at 11 p.m. London time, Brexit goes into effect. If you think that’s the end of that dispute, pull up a chair. I have a bridge to sell you.
We will get to Brexit another day. Today we’re going to talk coronavirus (213 dead, confirmed cases in 23 countries outside mainland China), and the significant impact it’s having on markets.
To recap: yesterday, the U.S. markets rebounded late in the day on the World Health Organization’s warning that the contagion situation is bad, but don’t panic. And hence we had the first, to my knowledge, “WHO bounce.” I’m calling it that. (The U.S. State Department probably killed and buried the “WHO bounce” hours later, advising Americans: “do not travel” to China.)
The projections for how bad this contagion could get are all over the place. My Fortune colleagues did an exhaustive job tallying all the companies—from Tesla to United Airlines —that have curtailed or shut down operations in China in recent days, or imposed employee travel bans. And Moody’s warns the coronavirus will impact global supply chains.
To see the short-term impact on the supply chain just look at commodity prices, which is the subject of today’s chart. China is a huge consumer of commodities, from copper to crude oil. Aluminum, steel, nickel, too. It’s building stuff at a pace that’s unfathomable to G7 nations. And so when China catches a cold, much of the commodities market sinks.
Commodities take a pounding
Commodities prices—with the notable exception of gold—are down across the board. As the chart above shows, the Bloomberg Commodity Index has plunged 6% since Jan. 17, when we got the first big outbreak disclosures. (That Bull Sheet made its newsletter debut right around then is merely a coincidence, dear reader.) Copper, Brent crude and palm oil, which China imports like no other country, are down even worse in that time.
I even find the swing in gold revealing. It’s up, but not by much, which might say something about investor uncertainty extending even into safe havens. So where are investors putting their money? What’s your coronavirus strategy? Drop me a line. Let me know.
Like Brexit, the coronavirus saga has only just begun.