This looks like a BLACK SWAN. #2019-nCoV is "more of a BLACK SWAN than the GFC and the Great Recession of 2008" - MOODY'S Report, Jan. 30th. (1/12)pic.twitter.com/RNknyLSHwG
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2- The #ECONOMIC impacts are clearer:
*Chinese businesses are CLOSING OPERATIONS (80% of 2018 #GDP, 90% of exports, 21 provinces), see APPLE closing all stores
*63 countries RESTRICTING entries of Chinese citizens, with Russia CLOSING its physical border
(4/12)pic.twitter.com/amSP3MH8OD
*40 airlines in 29 countries CANCELLING flights to China (AA, BA, Delta, KLM) => CHINA is now explicitly under EMBARGO (5/12)pic.twitter.com/ziVeEtJbIi
3- #MARKETS impact:
=> DEVASTATING implications on commos with effects of DEFLATION
=> TERM PREMIA to FLATTEN, US 30y to over-perform, #USD to shoot up & FED forced to CUT rates. Buy GOLD as real rates will fall.
(6/12)pic.twitter.com/oRZz4n0zD8
What will be KEY is to watch whether the authorities will regain #confidence fast enough and start re-opening provinces right after the 13th, which is the date they have chosen.
(7/12)
So they have 10 days to turn things around, which includes: (1) Containing the virus (2) Restarting halted factories/provinces (3) Convincing expats to fly back (4) Convincing global airlines that things are OK & countries to stop restricting access to Chinese citizens (8/12)
(5) Big unknowns: Following the US-China conflict, (1) will firms relocate their supply chains ? (2) which are the firms currently struggling because of lack of supply from China? (3) What impact on incoming FDI? (4) Can China still reach its trade deal commitments ? (9/12)
As most announcements were made in the past days, they should hold BEYOND the 13th. Already: •Hubei: Told that the closure would be extended beyond the 13th to an “appropriate extent”. •Tianjin: Businesses and schools are not to reopen until "further notice" (10/12)
We could be wrong : markets sentiment is not deteriorating this morning but Bund and T-notes calls skew >0 + Fed cuts priced in EDs Now, the ELEPHANT that could cushion the blows and re-ignite the “reflation” narrative is clearly coming. (11/12)
Expect a reflationary “bazooka” through a combined CCP/PBoC/FED/ECB Put. QUESTION is will it be SUFFICIENT to offset the economic impacts when it happens.
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#assetmanagement #investment #finance #economics #geopolitics #politics #research
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