The world is going through a double whammy right now - a supply and demand shock.
In China, industrial output fell by 13.5% during January and February while its retail sales fell by 20.5%. The US has pared interest rates to between zero and 0.25%, a level last seen in 2015. It also unveiled at least $700bn in asset purchases.
The reaction from Europe’s leading equity indices was a resounding raspberry. "So what?" they said. The fear over becoming infected with Covid-19 has transmuted into generalised, irrational fear, which has inevitably fed into financial markets.
At times of mass panic it is sensible to remember what US President Franklin Delano Roosevelt said in his 1933 inaugural speech - "the only thing we have to fear is...fear itself - nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance".
Calm will inevitably return
The spread of the Covid-19 virus is coming to a halt, although in Europe (now the epicentre of the pandemic according to the World Health Organization) that is not information that has any traction right now.
Attempts to ’contain’ Covid-19 are, by now, probably futile - preventing mortality is a different matter.
The number of new cases reported in China has dropped from thousands per day in mid-February to a mere 16 cases yesterday, four of which were in Wuhan, where the outbreak began, and the rest imported from outside China.
Given the doubt about information from China this may be questioned, but the mortality rate - of about 3% - remains low.
The shape of the recovery
Attention is already turning to the shape of the recovery.
Might it be a (delayed) V shape, or a U shape or some combination or a skewed shape? A global recession is already ’baked into the cake’ according to many influential economists. Passenger car production in China fell by more than 86% in China, as workers stayed home.
Most agri-commodity futures’ prices are still trying to find a stable bottom. Demand for many is certainly dented.
Yet panic ’fatigue’ will replace panic. People need to eat, and, moreover, once the reported cases of Covid-19 in Europe and north America start to slow, people will resume travelling.
The demand-side shock will end. The risk then will be that the amount of loose money that is about to flood all markets could stoke inflation - a positive feature for commodity prices.
That seems like an absurd suggestion right now. By the third quarter of 2020, when Covid-19 has ceased to terrify, it may look less absurd.