The Coronavirus Outbreak Is Beginning To Negatively Impact China’s Economy; U.S. Stocks Likely To Continue Friday’s Selloff At Monday’s Open

The Coronavirus Outbreak Is Beginning To Negatively Impact China’s Economy; U.S. Stocks Likely To Continue Friday’s Selloff At Monday’s Open
     That headline isn’t surprising as there is a lot of hype and hysteria with respect to the coronavirus. Despite the headlines, the mortality rate is still not much different from a typical flu outbreak. Nonetheless, ground zero is Wuhan, China a major transportation hub, and the most populus city in central China, numbering some 11 million. The financial news website/network CNBC is reporting January 26, 2020, that “overall travel on Saturday, the first day of the Lunar New Year dropped 29 percent from a year ago.”
     Liu Xiaoming, China’s Vice Minister of Transport, said that there has been a 41.6 percent drop in civil air travel, a 41.5 percent drop in rail travel, and a 25 percent drop in road travel versus one year ago. China;s Railway Chengdu announced today (Sunday), that it “would halt several high speed train routes — including some to Shanghai — for the next several days and into February.” Bloomberg News reports that “the Chinese New Year triggers the world’s biggest human migration, with more than 3B trips planned during the festival period.”
     “The severity of the rapidly spreading coronavirus in China that’s claimed more than a dozen lives is still unknown, and the extent of its spread will only be clearer after the Lunar New Year holidays,” said David Roche of Independent Strategy. “We really don’t know the characteristics of this virus yet.” Mr. Roche added, “In order to get to a pamdemic, you really have to have a virulent infection to be exponential….many of these new cases are due to much tighter reporting, not necessarily [indicative] of a higher rate of infection. So we really don’t know the extent of the rate of infection. The answer is wait till after the Chinese New Year — we will know the degree, the speed, and breadth of infections by this virus, and get a much clearer idea on the mortality [lethality].”
     “Another characteristic in question is the mortality rate,” Mr. Roche observed. “You have to have a very high mortality rate to have a pandemic. In SARS it hit 60-70 percent, and 80 percent at one point. So far, the mortality rate here is 3.4 percent, which is low.”
    “A clinical trial is underway using anti-HIV drugs ritonavir and lopinavir, to treat cases of the coronavirus,” according to an article in the medical jouirnal Lancet on Friday. Bejing’s Municipal Health Committee said Sunday that “the drugs made by AbbVie Inc., are part of China’s Natonal Health Commission’s latest treatment plan, and its hospitals have supplies of the medicine if needed.”
     The bottom line is that we are still likely in the early stages of the infection. There are a lot of unknowns; but, it is very encouraging at this point that the mortality rate is very low. But, there is little doubt that China’s economy is going to take a big hit in the immedate short-term. And, I would expect that the selloff we saw in the U.S. stock market is likely to continue at tomorrow’Momday’s opening. This market has been waiting for an excuse to selloff. Perhaps the coronavirus outbreak will be the catalus. Expect precious metals to get a boost in the immediate short-term, while oil and transportation stocks to take a hit.  RCP,


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