Bassanese Bites: RBA cut tomorrow – March 02 2020

Where to begin?  Clearly fears of the coronavirus took centre stage last week, causing the biggest one week drop on Wall Street since the financial crisis. It’s also the fastest “correction” (i.e 10% decline from previous peak) in history.   Are markets over reacting?  It’s hard to be certain they are, as while the coronavirus outbreak appears to have stabilised in China, the new concern is its potential spread to other major economies such as Europe and the USA.   On this score, history suggests it may be wishful thinking not to expect a sharp rise in new cases in these major centres of global economic activity over coming weeks, which could further unnerve global markets.

With 88,000 affected, this virus outbreak is already 10 times larger than the SARS outbreak of 2003.  It could potentially get as bad as the Swine Flu outbreak of 2009 which infected an estimated 1 billion people, or 15% of the global population. The Swine Flu’s death rate, however, was only around .02% – whereas the coronavirus fatality rate is currently around 3% (the SARS death rate was 10%). In the USA, the Swine Flu affected around 60 million, with around 12,000 deaths.

Helped by a low fatality rate, however, the Swine Flu did not materially affect global markets through 2009, which remained focused on recovering from the GFC.  With equity markets more extended this time around, and the death rate higher, this time could be different.  As a result, I can only repeat what I said here last week………

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