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Coronavirus infects financial markets

Coronavirus infects financial markets

Recent news about the coronavirus outbreak is tragic, with unimaginable and unmeasurable implications for the many affected. As we attempt to discern incoming economic data, our goal is not to diminish the harsh realities faced by those affected, but to keep in mind that there are economic impacts on investors and to make sense of a market environment that reacts in real time to public health emergencies. What’s happening? Global equity markets sold off sharply today following reports over the weekend that coronavirus infections are spreading outside of China at an alarming rate. The global demand shock will be hard to quantify for some time as the scope of the social and economic impacts in affected countries remains fluid. Governments are trying to balance the need to provide the public with information against the risk of causing panic. We are observing confusion among governments and policymakers, which is spurring risk-off behavior among investors. Yesterday, U.S. Treasury Secretary Steven Mnuchin told reporters that policymakers would explore options to respond to coronavirus. We think elevated levels of two-way volatility will follow today’s initial reaction to the spreading of the virus. Therefore, we caution investors against reacting to these acute price moves. Bigger

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