Despite what the unprecedented lockdown of areas in China that produced 70% of its GDP, and the use of hazmat suits, revealed about what Chinese officials were seeing, the rest of the world remained oddly complacent about what the novel coronavirus meant for them. How reassuring was it really if the disease had moderated as a result of the effective quarantining of the population, a condition that was clearly not sustainable? And there was the oddly optimistic view that a country of 1.2 billion could effectively be cordoned off from the rest of the world…particularly after it became clear the lockdown was implemented after the cornoavirus was meaningfully underway?
As our Ignacio has pointed out, it is disconcerting how much we still don’t know about this disease. It has a troublingly long incubation period, raising the possibility that some can harbor low level infections for a long time by normal contagion standards. Individuals can repeatedly test negative yet later develop the coronavirus. The Journal of Hospital Infection reported that human coronaviruses can live as long as nine days on surfaces…but alcohol will kill it in a minute.
The rapid spread of the coronavirus in Italy, on top of clusters in South Korea and Japan, has finally kicked officials in some countries into panic, even if they aren’t sure what to do. And this follows shortly on the mishandling of the two cruise ships with infected passengers and crew. But outside the business press in the US, there’s not much evidence of concern.
And on the business front, the reality is sinking in that it isn’t clear when China might get back to a semblance of normal operation. For instance, insiders leaked that the FDA had prepared a list of 150 medications, including some with no substitute, that were at risk of shortages. Equity markets, which had been complacent, are now looking rattled. South Korean averages are down more than 3.3%, the Hang Seng is off nearly 1.5%, US and European stock futures are off, and oil fell by over 3%.
First, on the spread of the coronavirus outside China. From Politico’s morning European e-mail:
Italy has become the first European country to adopt drastic measures to try to contain the coronavirus, to the extent that’s possible. With the number of infections in the country climbing to at least 153, about a dozen municipalities in the north are essentially under quarantine; some cities are sealed off; Milan’s Università Cattolica, which I have the honor of teaching at, told students, staff, lecturers and professors on Sunday that all academic activities are suspended for a week, as did all universities in the Lombardy region. Plus, Venice’s carnival ended prematurely.
Schengen under pressure: As fears grow that the coronavirus outbreak will grow into a pandemic, the borderless Schengen zone is feeling the pressure. Austria late on Sunday suspended train traffic toward Italy after two rail passengers on a train in the opposite direction — from Venice to Munich — were suspected of being infected with the coronavirus. (Trains over the Brenner Pass resumed running on Monday, after the travelers tested negative.) Prime Minister Giuseppe Conte said in a press conference that his government wants to uphold the freedom of movement and no restrictions are planned for the time being — with an accent on the second part of that sentence.
GOOD MORNING. Italy, the EU country hit hardest by the virus, is trying to keep it away from Milan, its economic capital.
The Financial Times lead story earlier this evening was the Italy quarantine; it’s now been displaced by the market swoon. On Italy:
Italy has imposed a strict quarantine across at least 10 towns as authorities in its wealthy northern regions battled to contain the largest coronavirus outbreak outside Asia.
Officials said on Sunday that a third Italian had died from the virus as the infection count rose to 152, up from just three identified cases on Friday, raising fears that the infection was spreading at pace through Europe….
Further outbreaks were reported across the world. Authorities in Iran shut schools and some religious seminaries as the number of deaths rose to eight, prompting Iraq and Turkey to shut their borders with the Islamic republic….
In Italy, the majority of new cases are concentrated in the wealthy regions of Lombardy and Veneto that make up around a third of the output of an Italian economy already teetering on the brink of a recession.
Police have established a blockade around a cluster of 10 communities south of Milan with a population of about 50,000 people, where a large number of infections have been identified….
Italian authorities have been unable to identify the outbreak’s source or how it apparently spread so quickly between patients who have not had direct contact with travellers from China.
Yves here. I am relying on memory, which may be faulty (but Google is no help) but I had thought the person who was the original suspected Italian patient zero had been quarantined for 14 days, tested negative, came home, later got a mild case but infected others, at least one seriously. I appear not to be alone in having seen something along those lines:
BREAKING – the "Veneto" (Northern Italy) region "patient zero" has been found, he is a Chinese textile worker who went to the Inter-Milan derby, then infected the two (dead) pensioners who further spread it.
— Ve 🇪🇺 🌊🇮🇹🏳️🌈🐟 (@ve10ve) February 23, 2020
This confusion about disease propagation makes me wonder if the authorities are rejecting that this individual could be the origin of all these infections….and if so, are in denial that the coronavirus might be exceptionally infectious.
The outbreak area, as indicated, is near Milan, and the Milanese are hunkering down:
Stunned by Europe’s biggest surge of the #coronavirus, Italy appears to be operating in near panic mode.
— QuickTake by Bloomberg (@QuickTake) February 24, 2020
Needless to say, the general area hit represents about 30% of Italy’s GDP, and comes when Italy is on the verge of a recession.
Things are not pretty in Asia either. From Reuters:
South Korea’s fourth-largest city Daegu grew increasingly isolated as the number of infections there increased rapidly, with Asiana Airlines and Korean Air suspending flights to the city until March 9 and March 28 respectively….
South Korean authorities reported a seventh death and another 161 new cases on Monday, taking the total to 763. Of the new cases, 115 were linked to a church in Daegu.
Seoul raised its infectious disease alert to its highest level on Sunday after the southeastern city and nearby Cheongdo county – where infections surged last week – were designated “special care zones”.
The escalation in the alert level allows the government to send extra resources to Daegu and Cheongdo, forcibly prevent public activities and order the temporary closure of schools.
One bit of good news is China is claiming there were only 11 new cases were found outside Hubei…but how much faith do those inside and outside China put in that number?
The Wall Street Journal provides a broader view of the impact of the China lockdown on foreign business:
In the U.S., General Motors Co. unions have warned that a lack of China-made parts could slow assembly lines at sport-utility vehicle plants in Michigan and Texas….
Mostafiz Uddin, a bluejeans manufacturer in the southeastern Bangladeshi city of Chittagong, said he has been unable to fulfill an order for 100,000 women’s jeans because he can’t get the fabric he needs from China. “I am just waiting,” he said. “We have no option.”…
Hyundai Motor Co., after shutting some of its Chinese factories this month, suspended one of its main assembly lines in Ulsan, a big South Korean city, because it couldn’t get parts from China. Asiana Airlines Inc., South Korea’s second-largest airline, put its 10,500 employees on staggered shifts of 10 days’ unpaid leave from Wednesday.
Major electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation. Japan’s exports to China are expected to drop 7% this quarter from the prior one, NLI Research Institute economist Taro Saito said. Videogame giant Nintendo Co. said this month that some shipments of its flagship Switch gaming console are delayed as it can’t get parts from Chinese factories….
Countries most reliant on China could see more than half a percentage point wiped off their gross domestic product this year, some economists say….
A U.S. freeze on visitors from China is a blow to hotels and retailers that rely on their spending. Asian economies that have grown dependent on Chinese visitors and commerce are reeling. Singapore last week cut its annual GDP forecast to around 0.5%, down from 1.5%. Thailand estimates tourist arrivals could drop by 13% this year as Chinese are grounded.
In Vietnam, a small economy highly dependent on Chinese supply chains, exports in January fell 17.4% year-to-year to their second-lowest level since the U.S.-China trade war began, official data showed.
Yves here. Apologies for the formatting fail: WordPress does not like that very long chart and is not letting me make a text indent to show that the quote from the WSJ is over and we are back to the post text.
I hate to point this out, but these economic effects are based on the China production cuts and drops in tourism. Mr. Market is now waking up to the fact that other countries could also take direct hits from their own containment efforts. And confirming the broader impacts, there is anecdotal evidence that the conference business is taking a hit. I’ve heard of three free invites being extended to high end finance conferences, which is a strong sign of cancellations, particularly since the people invited weren’t investors or well known.
However, coronavirus-related profiteering has already started:
peak capitalism is amazon setting the price of a hand sanitiser at 30E/80ml as italy is going through a huge covid19 breakout pic.twitter.com/ih1Yy8nvH0
— mars (@mareidolia) February 23, 2020