Five Things You Need to Know to Start Your Day
Pedestrians wearing protective masks wait to cross a road in the Shinbashi district of Tokyo, Japan. (Photographer: Akio Kon/Bloomberg)  

Five Things You Need to Know to Start Your Day

(Bloomberg) --

The WHO finally declared a pandemic. The bull market is over. And economists think Chinese factories are back in business — almost. Here are some of the things people in markets are talking about today. 

It’s official: The coronavirus outbreak is now a pandemic. The World Health Organization made the declaration just hours ago, urging governments to step up containment efforts as the number of worldwide cases topped 120,000 and deaths exceeded 4,300. The United Nations body had previously stopped short of the designation despite the major outbreaks in South Korea, Iran and Italy, where deaths due to the virus surged past 800 on Wednesday. But the infection is now gaining ground across Europe and the U.S. “All countries can still change the course of this pandemic,” WHO Director-General Tedros Adhanom Ghebreyesus said in a briefing. “Those with a handful of cases can prevent those cases becoming clusters and those clusters becoming community transmission.” There’s no strict numerical definition of a pandemic. Elsewhere, Seattle became the first major American city to close its public schools, while Italy closed all businesses except pharmacies and grocery stores as the death rate there jumped 31% to 827. U.K. cases jumped 22% to 456, and Trump is now weighing restricting non-essential travel from Europe, according to two people familiar with the matter.

A global equity rout looked set to deepen in Asia on Thursday after a renewed sell-off in U.S. equities, with investors concerned by a lack of clarity from the Trump administration on a coronavirus stimulus package. Treasury yields rose in a volatile session. As the World Health Organization called the virus spread a pandemic the Dow Jones Industrial Average tipped into a bear market, ending the longest bull run in history for U.S. shares. The S&P 500 lost 4.9% on Wednesday and futures indicated a lower start in Japan, Hong Kong and Australia, and the yen climbed and oil tumbled. West Texas Intermediate crude slid 3.6% to $33.12 a barrel and the oil war escalated again after Saudi and the U.A.E. promised a flood of crude. Gold slipped 0.2% to $1,632.15 an ounce. 

Pandemic bond investors are bracing for a wipeout as the coronavirus spreads. What are pandemic bonds? A financial instrument sold by the World Bank to raise money for developing countries in a pandemic. The bonds, which were sold in 2017, are quoted at less than 10% of face value by some brokers on the riskier of two tranches, according to investors who own the securities. Two weeks ago they were at 60%. The securities are structured so that they are written down following outbreaks of certain diseases named as covered perils. The quoted price of the $95 million risky “Class B” portion of the debt means investors think a wipeout is all but inevitable when a mandatory period since the start of the outbreak expires on March 23. Holders of the safer Class A tranche are expected to face losses of 16.67%. Boston-based private company AIR Worldwide Corporation determines whether a trigger event has occurred, based on an outbreak meeting a list of criteria in areas such as geographic spread, rate of growth and number of deaths. Now, the severity of the coronavirus pandemic has reached levels almost certain to trigger them. 

Across China, factories that produce everything from smartphones to sneakers have been dormant since the Lunar New Year holiday in late January, as the nation battled to contain the spread of the new coronavirus. Now plants are slowly coming back online, prodded by President Xi Jinping and other top Chinese leaders who worry that an extended shutdown will jeopardize the government’s lofty development targets for 2020. How do we know? Economists are tracking energy consumption, poring over pollution charts, and studying data on traffic movements to discern how quickly the world’s second-largest economy can get back to business. In fact, Bloomberg Economics has estimated that the country was operating at as much as 80% of normal capacity as of March 6. About 78 million migrant workers who were left stranded by restrictions on travel imposed after the start of the January holiday are being allowed back into the megacities along China’s east coast. That’s 60% of those who went home for the holiday in the first place. What’s more, the use of coal burned to generate electricity — a proxy for economic activity — has been steadily ticking up and is now approaching normal levels for this time of year.

Global banks are walking away from deals. Why? Banking giants, including Credit Suisse and Morgan Stanley, have grown more wary of underwriting initial public offerings by Chinese companies in the U.S., concerned about rising reputational risks after a string of disappointing deals. The heightened scrutiny augurs a harder sell for Chinese firms once the market overcomes the current tumult. In fact, even before the rout in equities that began last month, 26 of the 33 Chinese companies that went public in the U.S. during 2019 were trading at less than their offer prices, according to data compiled by Bloomberg. That’s just one of a number of concerns among market participants. Geopolitical strains between the U.S. and China, particularly in technology, continue to pose a challenge  — the January trade deal notwithstanding. A push in Washington to consider measures to reduce American capital flowing to Chinese securities adds to the political element. Along with limited institutional investor demand for some names, it all means the hurdles may be too high for smaller deals that lack transparent financial backgrounds.

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