COVID-19, the Exogenous Event That Became an Economic Event

Dow futures rise as China pledges to stimulate coronavirus-hit businesses

China is again taking economic action as the market awaits the Fed Minutes this afternoon.

The market has been mostly trending upward but has also been attuned to developments related to coronavirus and the potential for slowing global economic growth due to disruptions to trade and travel caused by COVID-1, the infectious disease that originated in Wuhan, China late last year.

How can this (bullish stocks) be? Well, it’s the unstoppable force (Coronavirus) vs. the immovable object (Central Banks).

They. will. stop. at. nothing… to keep the inflation going because that is the only way out as deflation comes back into view… until the next time long-term interest rates threaten the racket on the upside.

The Fed is boxed in at the lower bound, doing all it can to prevent deflation from unwinding decades of systemic credit/inflation and at the upper bound by the bond market’s would-be vigilantism should yields finally rebel as they made a move to in Q4 2018.

As you can see, the Trade War/COVID-19 double whammy has them fully in dove mode and trying to get the Continuum’s ass back up into the safe zone. Ha ha ha… “safe”. But anyway…


Back on the micro-topic at hand, something called the Ministry of Industry and Information Technology has “heartened” (lol, I love these terms the MSM use for knee-jerking casino patrons on a daily basis) investors. It’s code for ‘China’s central economic planning is going to go balls out along with the rest of the world to inflate this mess before an exogenous event makes the whole souffle go Pffffftttt

On Wednesday, investors also appeared heartened by comments from China’s Ministry of Industry and Information Technology, which said Beijing would help companies to identify weak links in supply chains, the Wall Street Journal reported.

Meanwhile, Coronavirus is an economic virus at this point, as exemplified by Apple’s warning.

“COVID-19 remains the market driver and is set to frame policymakers’ reactions around the world over the near-term,” wrote Han Tan, market analyst at FXTM, in a research report.

“The global economic outlook remains mired in uncertainty at this point in time, with coronavirus-related warnings emanating out of Apple and corporate America,” he said, referring to Apple Inc.’s warning on Monday, which weighed on stocks on Tuesday.

Coronavirus is stepping well out of the realm of the usual knee-jerk inducing hype that I often note in this space, into the realm of an event that is transforming the short-term prospects of industry and economy.

Usually the gold price is highly vulnerable to war, terror and pestilence-driven bids that drive it up due to factors having nothing to do with its fundamentals. But insofar as an event can transform actual fundamentals (by weakening economies), it is a real factor. Gold would like weakening economies.

Meanwhile, stock markets cling to the Central Banks’ coat tails and hope for the best. The whole process is morbidly interesting to watch.

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