Weekly Wrap by Pythagoras Investing for 24 January 2020

Chinese New Year ushers in the year of the Rat. But the Coronavirus is going to have an impact on China’s celebrations and world markets near term.  Lunar New Year is a significant travel period for 400m Chinese, raising the potential for further spread of the illness.  The outbreak of Coronavirus in China has led to concerns over a slowdown in the nation’s economy.

Analysts are attributing commodities weakness to the possibility that the virus will curb travel and result in less fuel consumption. Crude-oil prices could also decline.  A slowdown in industrial production, air travel and petrol consumption could lead to less demand – affecting prices.  During the SARS epidemic oil prices fell almost 20%.  The virus could also result in less consumer spending in the short term – metals could fall (zinc, copper and base metals).  China is responsible for approximately half of copper consumption globally.

If SARS serves as a guide, the overall impact of the virus outbreak may be modest and short lived on the global economy, as well as on the commodities sector.

But we can almost certainly count on a global share market overreaction. The coming few weeks will be crucial to know the real effects.  We do know that the official reaction has been quicker than for SARS.  With luck, officials can limit the spread and fatalities.  It is interesting to note that a new hospital will be built in Wuhan to treat coronavirus sufferers, to be completed in just six days!  It is amazing what can be done in China.

North Korea has walked away from nuclear talks with the United States.  North Korea issued a 2019 year-end deadline which had been ignored by the US.  Now it believes it is no longer bound by commitments which include a halt to its nuclear testing and the firing of inter-continental ballistic missiles.  We may see this testing begin again.

USA impeachment arguments ongoing.  Unemployment in Australia isn’t going to move the needle.

Our hearts go out to all of those who are affected by bush fires.  No matter how you spend your long weekend in Australia we sincerely hope you enjoy it.

Michael Dee 0419726223

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