Coronavirus fears lead to volatility, economic slowdown, oil price drop

Investor fears that the spread of the coronavirus in countries outside China, including Iran, Italy and South Korea, may slow world demand led to a fall in oil prices by 4% on 24 February.
Brent crude was down $2.37, or 4.1%, to $56.13 barrel, Reuters reported on 24 February, adding that US crude futures fell by $2.08, or 3.9%, to $51.30.
On 25 February, the coronavirus outbreak reportedly continued to spread, bucking efforts to contain it mostly to two rural areas near Milan and Venice. At least 283 people have reportedly been infected in Italy.
“That’s the first major European country to actually suffer this,” Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe by phone on 24 February. “We’re now going to lead to increased volatility because you actually have no way of measuring this. As this carries on, the longer term of exports coming out of China, there are now talking about this could affect the Christmas market in terms of delay of manufacturing coming out of China over the next two weeks and that’s the sort of longer-term picture you are looking with this,” he said.
Urquhart Stewart noted that volatility and a slowdown in economic growth will lead to lower oil prices. “So, for investors at the moment, this is going to be an interesting point because if you think this may turn into a pandemic and make the economy stop, you’re going to see some significant volatility and if you are a brave investor you will be able to pick up oil prices at quite low price I suspect over the next few months because what this is going to lead to is a pullback in confidence in all the economies. That’s the most difficult thing to try to deal with at the moment,” he said.
According to Urquhart Stewart, the spread of coronavirus in Italy has a phycological factor on investors. “Most of us don’t actually know the effects on this. The amounts of deaths are still relatively small compared to the ordinary flu but the media is giving it such headlines that the level of nervousness will just mean you can easily see Germany falling back into recession again and the French economy looking weak, that’s what Europe does not need at the moment,” he said.
In the US, the oil rig count rose for a third straight week. Drillers added one oil rig last week, bringing the total count to 679, the highest since the week of Dec. 20, Reuters quoted energy services firm Baker Hughes Co as saying.
But Urquhart Stewart told New Europe that’s a surprise. “I have to wait to see if there is going to be a trend there or not. But one of the issues they will be looking at if it’s locally produced, everything is going to be localized. If you can make it local then you will see less exposure to the threat you can’t measure. That’s the illogicality of it. You are dealing with people’s imagination of what could occur and because they can’t be counted with anything resembling a fact and you see this ripple through the markets that level of nervousness and a concern that as equity markets are at such high level, especially in the America, that’s a moment where some companies will be looking to cut their profits and pull out until things calm down again. If you can’t measure it, you can’t invest in it,” he said.
Chinese President Xi Jinping said on 23 February his country will adjust policy to help soften the blow to the economy from the coronavirus outbreak. “China can and will. It is a controlled economy,” Urquhart Stewart said. “And, of course, the data is so highly unreliable coming out of China. But what we can say is the way we can see it, is the effect from companies in Europe as you see with Jaguar and Land Rover saying how quickly now they will be running out of cars unless production starts again. So that’s the effective way we try and measure the effect it’s having. We have to be extremely concerned about this,” Urquhart Stewart said, adding: “The issue is the confidence and a lot of it is driven by some irresponsible media, the commentary on it, which is going to put a huge break on economic growth and expenditure.”