Monday Musings: February 24, 2020

Feb 24, 2020


Public Trust Credit Team
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“The only thing we have to fear is fear itself”… and coronavirus

Before the market opened this morning, analysts were warning of a dire day, and unfortunately, it looks like the fears and reality of the spread of the coronavirus have proven them right. At present, major equity market indexes are down almost 350 basis points. Reflecting the flight to safety, the 10-year Treasury note is currently trading around 1.37%, its lowest level since July 2016, with the 30-year Treasury at 1.83%, a record low. Market participants are bracing for a period of negative headlines while also positioning for the potential of an epidemic. These are the updates the Credit Team is focused on:
  • Wuhan is still on lock down; this is a problem because the city makes up 10% of the total rail traffic in China and acts as the largest rail connection hub in the country.
  • Wuhan produces 15% of all automobiles in China. Nissan, Honda, and their joint ventures are the largest operations.
  • While Wuhan remains under lock down, other provinces have opened their factories. However, many manufacturing employees come from the Hubei province (Wuhan’s province) so finding workers who are not on lock down has proven challenging. Hunan, home to Foxconn’s largest iPhone factory, is offering bonuses and guaranteed overtime in an attempt to lure workers.
  • Citi estimates that the Chinese factories that have opened are operating with 30-40% of their employees at about 50% utilization after accounting for gains from overtime and bonuses.
  • With 219 confirmed cases and five deaths, Italy imposed a quarantine across at least ten towns in an effort to contain the biggest outbreak of the virus outside of Asia.
  • South Korea reported 231 new cases on Monday, bringing the total number of reported infections in the country to 833.
  • EU authorities said they still have no plans to suspend travel across the 26-country Schengen areas of visa-free travel.
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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