THE STOCK MARKET IS NOT READY FOR THE ECONOMIC CONSEQUENCES OF THE CORONAVIRUS
The coronavirus continues to spread and enter new countries:
* South Korea, population 52 million: 2 deaths were recorded, 208 patients were infected, the number of patients doubled in a day, in the center of the spread – the city of Daegu with 2.5 million people. population-residents were asked to stay at home, schools were closed.
* Iran, population 83 million: 9 people died from the virus, the city of Qom with 1 million inhabitants is under quarantine.
• At the same time, the border with China has been closed only 7 countries out of almost 200.
The effect on the economy continues to grow:
* In Hubei province (the virus came from this province), workers will not return to work at least until March 10.
• In General, only manufacturers of hygiene masks operate at 100% capacity in China.
• A variety of businesses report falling sales. Apple's sales in China are rumored to have fallen by 40-50% yoy. IATA predicts that airlines will lose $29 billion in revenue this year.
* Auto sales in China collapsed by 92%.
Against this background, the us dollar is strengthening against all currencies. The yuan is again above 7, as during the trade war. Trump may start talking about tariffs and duties again. The fall in the protective yen is particularly alarming: capital may flow out of Japan due to the risk of a virus and / or expectations of new quantitative easing.
A stronger dollar against the backdrop of a soft fed is a Wake-up call for risky assets. The market feels that the situation in the world economy is getting worse and is looking for a place to hide. And even the Japanese choose the United States as a safe haven.
At the same time, the stock market is absolutely not ready for a fall. The market is dominated by bullish sentiment. Record-low number of shorts. Traders do not buy put options (insurance against falling), but rather buy call options (a bet on growth). Yesterday, us stocks fell by 1% from their historical highs after the opening, and Bloomberg TV was startled to find out what the drop was.
In a situation of growing macroeconomic risks and complete complacency of investors, it is better for a wise investor to stay away from stocks.
