Coronavirus: Market Concerns Mount

The coronavirus is spreading rapidly, and as China moves aggressively to quarantine cities and contain the spread of the virus, markets are worried.  The first symptoms of the coronavirus appeared around December 8, 2019 in Wuhan, China.  The first case showed up at the local hospital on December 31, 2019.  Then, the reported cases grew exponentially to thousands by the week of January 20, 2020.  The virus is most deadly for the elderly. Figure 1 shows how the virus spread in Wuhan, China.

Figure 1: Spread of Coronavirus in Wuhan, China

The narrative has been captured in part by the parallels with the SARS (severe acute respiratory syndrome) virus back in 2003.  SARS spread rapidly, eventually peaked and then came under full control.  While the pace and ability to contain the Wuhan coronavirus will differ from SARS because medical research has improved and China is moving much more aggressively, many epidemiologists expect a similar pattern in terms of exponential expansion, a topping off, and then a relatively quick containment.  See Figure 2 to visualize the spread of SARS in 2003.

According to news reports, what is critically different from SARS this time around is that the Wuhan coronavirus can spread prior to symptoms appearing.  This very different aspect of how the virus spreads will complicate containment and is potentially what is driving the initial market reaction.

Figure 2: SARS cases in hospitals in Beijing in 2003.

Chart Notes:  Epidemic curve—severe acute respiratory syndrome (SARS) probable case-patients by date of hospitalization and type of exposure, Beijing, 2003. Open bars indicate non-healthcare workers without contact with a SARS patient; dark bars (“1.1”) indicate non-healthcare workers with contact with a SARS patient; light filled bars indicate healthcare workers.

Source: CDC (Centers for Disease Control and Prevention), Volume 10, Number 1—January 2004, “Severe Acute Respiratory Syndrome, Beijing, 2003”

Market reactions are likely to follow the narrative as it develops in the news cycle.  As long as the narrative puts the progression of the virus as moving up the curve, then markets will be worried, and the worries may spread.  Indeed, starting the week of January 20, 2020, traders and investors began to fear the economic repercussions of the aggressive moves by China to contain the spread of the virus.  Oil markets realized the potential for lower demand quickly, as did the Chinese yuan.  The flight to quality moved into US Treasuries, with yields lower (prices higher) and gold prices higher a few days later, then global equities responded on Monday, January 27, 2020, after the weekend news cycle.

Once the news cycle narrative moves to the containment phase when new cases start to decline rapidly, then the most likely outcome is for a reversal in most markets as fears abate.  Full price recovery for the markets hit the hardest may take some time, as we analyze the economic impacts on China and global growth.  Our bottom line at this early stage is to follow the narrative, and then move quickly when the narrative shifts direction.

Figures 3-8: Market Reactions to the Spread of the Wuhan Coronavirus


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

About the Author

Bluford “Blu” Putnam has served as Managing Director and Chief Economist of CME Group since May 2011. With more than 35 years of experience in the financial services industry and concentrations in central banking, investment research, and portfolio management, Blu serves as CME Group’s spokesperson on global economic conditions.

View more reports from Blu Putnam, Managing Director and Chief Economist of CME Group.

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