The European Central Bank (ECB) monitors whether the new corona virus is damaging the European economy, said ECB President Christine Lagarde on Wednesday. In doing so, she seems to indicate that the ECB is now looking at the situation, and is willing to respond with monetary steps if the situation so requires. Several Asian central banks have made similar statements or even announced measures. The FED is also expected to cut rates again this year if the corona slowdown hurts the American economy, even though they announced no more rate cuts in 2020 after the last FED meeting back in January. The Golden Investor expects a rate cut of the FED if the outbreak is not contained. The Golden Investor is long on gold and suggest buying mid and low cap gold miners stock to speculate on a global slowdown of the economy and further Central Bank expansions.
“Although the threat of a trade war between the United States and China seems to have disappeared, the corona virus creates new uncertainty”
Head of ECB – Christine Lagarde
Corona Outbreak Is Hurting Companies Around The World
Many companies report a stop in new orders from their Chinese companies and are facing troubles exporting their goods to China. While several countries and airlines have been cutting passenger flights to China since the outbreak of the virus, consequently also the amount of cargo that normally goes along with those flights is cut. With this bottleneck being tightened by every cut of flights to China trade is tightened too. In comparison, the SARS outbreak in 2002/2003 caused a GDP slowdown of -1 percent of Chinese GDP, the difference is that since then China’s GDP quadrupled to a stunning 17% of the world GDP. The current slowdown has already trammeled Hyundai’s car production in South Korea due to a shortage of Chinese produced car parts. And Hyundai is not the only company facing huge consequences of the Chinese slowdown, many companies are reliant on Chinese manufactured products and materials. In response to a possible dangerous slowdown of the Chinese economy the Chinese government has already pumped $173 billion US dollars in their financial systems to avert a crisis. Furthermore they will cut tariffs imposed on US goods with 50% lowering the tariffs with $75 billion US dollars. If this will be enough is not sure, further developments of the outbreak will tell us more.
With Tianjin starting to restrict the entry and exit of people from residential compounds and villages, Beijing taking measures and a whole providence on lockdown, the economic burden deepens for China. And as seconds, minutes and hours pass, the number of infected people increases and the amount of critical cases soars everyday to concerning heights. Moreover several new cases show that people contract the virus locally in other countries in South-East Asia, like Thailand and Singapore. Along with this there are multiple reports of people showing symptoms and initially testing negative only to be tested positive for the virus as symptoms worsen or even worse, after being sent home. The Golden Investor knows this was the case in the third Philippine case and several similar reports show the current inaccuracy of corona testing kits.
Unhappy Chinese Citizens
Today one of the first doctors, Dr Li Wenliang who raised concerns about the new corona virus has sadly passed away. This fueled the growing anger among Chinese citizens with the current Chinese government. Beijing’s worst fears are slowly becoming true, while WeChat is full of people using the hashtag: “# 我想要言论自由” or in English “I want freedom of speech”. This growing anger can possibly lead to civil unrest at least and hopefully will lead to a more transparent China in the future. China has tried to make the virus look as bad as is possible, but many Chinese are pointing their anger at the lack of control and transparency by the Chinese government. With the worsening of the outbreak every day Xi Jinping’s power over its citizens seems to flow away, although he currently still has enough power to be able to avert a crisis. A Chinese recession following the outbreak could potentially worsen the anger and create unrest among residents who are unhappy about the Chinese legislation. The Golden Investor continues to revise its portfolio to be able to endure a major global slowdown.
Disclaimer: The writer of this article owns gold stock, this article shouldn’t be interpreted as investment advice or anything like that.