The Covid-19 epidemic has wreaked havoc on global financial markets in the past few weeks, even though it had been evident for some time that the virus would spread from China to the rest of the world. It is as if global investors needed to see the flu arrive at their doorstep before reacting.
As discussed in a just-published report from MRB Partners Inc., the first tangible bearish economic data has arrived highlighting the steep drop in Chinese economic activity, with both the manufacturing and service sector PMI surveys collapsing. While current readings are still healthy in Europe and especially the U.S., significant declines loom in the next month or two as quarantines and closures spread around the globe.
The risk-off environment will persist until the Chinese PMI gauges start to rebound, and Europe and the U.S. are past their worst, which is going to take a few months. The only good news of late is that there are signs that the Chinese economy is finally starting to re-open. Stay tuned.