- The death toll of the virus outbreak rises to 17
- Millions on lockdown in two Chinese cities
- WHO postpones decision to declare international health emergency
Thursday saw the Chinese yuan drop as authorities locked down two cities at the epicenter of the coronavirus outbreak. The USD/CNY was trading at 6.9363.
The Japanese yen continued to gain on the back of ongoing concerns that the coronavirus might spread even further. This was fueled by the first case of the coronavirus appearing in the United States, in Washington state.
The yen also gained due to weak Japanese export figures, which declined YOY by 6.3% in December. This is compared to expectations of a 4.2% drop.
Coronavirus outbreak continues to escalate
The coronavirus outbreak has now infected over 630 people and caused the death of 17, as reported by Chinese authorities. However, scientists from the Imperial College London estimate the figures are much higher.
In a report on Wednesday, they stated that over approximately 4,000 people may have been infected. They pointed out, though, that this is likely due to delays in confirming and reporting the cases.
Medical professionals have compared the new coronavirus outbreak to the 2003 SARS outbreak. It took nearly two months for SARS to infect 456 people, whereas this virus spread to over 630 people in just a few weeks.
The CDC, along with other medical professionals, noted that the disease doesn’t appear to be as severe as SARS. The virus can spread through respiratory transmission, according to Reuters, and there is no vaccine against it. Some speculate it could take a year or more to develop such a vaccine.
Two large Chinese cities under lockdown
Chinese authorities have taken measures in an attempt to prevent the disease from spreading further.
In Wuhan, a city with 11 million residents, most forms of transport were shut down on Thursday. A few hours later, Huanggang, a nearby city of 7 million residents, followed suit. Authorities also shut down outgoing flights from Wuhan at 10am. Local reports said some airlines were still flying even after the deadline. Highway toll booths also closed, cutting off road access to the city.
Wuhan residents rushed to hospitals to get tested and fought over supplies in the stores. They emptied out supermarkets and queued up to get gas for their cars.
Most indoor entertainment venues, including cinemas and cafes, were also closed in Huanggang. In Beijing, major public events were canceled, including Lunar New Year celebrations. The people themselves have been taking precautions too. They wear face masks and only go where absolutely necessary.
World Health Organization postpones decision
On Wednesday, the World Health Organization held an emergency meeting. The goal was to decide whether to implement an international health emergency. However, they postponed their decision, stating they didn’t yet know enough about the virus.
The WHO is holding another meeting today and will reveal its decision at a press conference after 6pm (GMT).
Effects of the coronavirus on the economy
Besides the health implications, the coronavirus outbreak could have a significant economic impact too.
While China has been open about the situation, unlike the SARS outbreak, global shares still declined. Chinese stocks experienced the greatest decline in over 8 months. Ned Rumpeltin, European head of currency strategy at TD Securities, said, “Ultimately, the coronavirus is a slow-burning but important story for markets that is likely to last for months rather than just a few days.”
As a comparison, China saw a year-over-year decline of 45% in tourism with the SARS outbreak. The International Air Transport Association (IATA) estimated that Chine lost approximately 1% of its GDP due to the SARS outbreak.
- Yuan experiences biggest loss in 25 years
- Beijing considers measures to mitigate the issues caused by U.S. – China trade war
Biggest loss recorded
Since the beginning of August, the Yuan has dropped by 3.9%, making it the most significant loss since 1994, when the country adopted the current exchange rate regime.
The decline was sparked by increasing tensions between the United States and China in trade negotiations. Further indications that the economy is slowing down along with strong expectations that additional easing will take place have also added pressure to the yuan.
Dariusz Kowalczyk of Credit Agricole stated that the situation will continue to deteriorate for China and the world if there is no clear sign of progress in the negotiations. According to Kowalczyk, the yuan could weaken to as much as 7.3 to the U.S. dollar.
Tuesday saw the People’s Bank of China set the yuan’s daily reference rate at a level that’s higher than expected for the fifth day in a row. If the yuan doesn’t strengthen, it could result in capital outflow and further weakness, which could lead to instability.
Yuan drops to a new 11-year low against the USD
Friday saw the Chinese government and President Donald Trump volley threats of more tariffs at each other. This led to the yuan dropping to a new 11-year low at the beginning of the week.
According to strategists from the Bank of America Merrill Lynch, the People’s Bank of China might allow the currency to weaken further to counteract the tariffs. It is believed the yuan could be allowed to drop to 7.5 by the end of 2019.
Tuesday saw the yuan trading at 7.1621 to the U.S. dollar, equating to a decline of 0.14%.
CFETS RMB Index hits a new 4-year low
The yuan hasn’t just weakened against the U.S. dollar, though. The CFETS RMB Index, which measures the yuan against 24 currencies from China’s main trading partners, dropped to 91.1. This is the lowest the index has been at since 2015 when it was first introduced.
Beijing indicates possible economic stimulus measures
China is feeling the effects of the trade tensions, considering their recent announcement. Beijing’s State Council stated it might implement a series of measures to boost the economy and mitigate the damage caused by the U.S. – China trade war.
One such measure is to lift restrictions on car sales that some local governments have implemented. The goal is to increase demands for new vehicles, especially considering that sales have fallen in this sector over the last year.
Other measures include renovating commercial pedestrian streets, providing more help to stadiums and shopping malls, and converting old factories into commercial complexes. They are also considering allowing restaurants and shops to stay open longer, as well as providing more help to consumers to purchase smart home appliances and electric cars on credit.
The goal is to boost growth, which declined to 6.2% per year in Q2 of 2019. However, experts feel more stimulus will be required if the situation between the U.S. and China does not improve.