The coronavirus has brought some of the worst price movements that financial markets have not seen in an extended period. The virus initially started in China and is quickly mutating and spreading among humans all over the world. Many sectors have faced disruptions due to shut down of big companies which have shattered the flow of essential supplies from, the affected countries.
Worst Scenarios
First of all, the virus might spread more rapidly than we anticipate and secondly, the economic fallout may be more significant. The bad news is the worst scenario is looking increasingly likely with the virus spreading across six continents, and we are still uncertain about how long it will last and how bad it will get. Additionally, we may have underestimated how the virus can spread and the period in which a person can be contagious. It may lead to long-term market effects with negative rates and extended losses across all asset types.
Further market disruptions could be underway, and macro market volatilities might become tricky to manage. The world may see failure in the monetary policy, since global central banks may be forced to lower rates and produce more money. Oil prices might plunge more, making the situation even worse for the global GDP, which can affect forex funding. Oil and financial markets are closely tied, and crude oil is always quoted in US dollars meaning that in case of any price changes, all other related commodities will be affected. The oil-producing countries will feel the impact when there is a down tread in the oil prices.
The worst scenarios will result from the effects of severe disruptions on the global supply chain, closing airports and credit market problems as a result of mass quarantine. The impact will profoundly affect employees on global security firms and contribute to financial market shutdowns. “both the severity and the apparent inconsistency of a ban which excludes the UK and Ireland has caused consternation across European markets.”
The best Scenarios
The epidemic may be contained soon to limit the market disruptions before it is too late. Global health officials have come together to analyse the progress of the virus outbreak and to provide information on how it spreads. Therefore, most people are now working from home, to avoid public places and are taking fewer trips which may help to reduce the spread of the virus.
People will have to be creative and use online options, which limit physical interactions. A group of scientists is also working on a vaccine, which might appear promising. Policymakers are moving towards providing meaningful monetary and fiscal support.
Conclusion
The epidemic has sent chills across global markets since they hang in an uncertain position between recovery and further disaster. Most analysts have agreed that the future scenarios will be determined by the rate at which the virus will continue to spread and the way the countries will try to contain it.
Karim Yousfi
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