Most major sporting events postponed due to Coronavirus
As governments worldwide crackdown on large gatherings of people alongside music events, almost all major sporting events have inevitably been cancelled/postponed, to protect against the spread of the virus. The most significant so far understandably being Japan Olympics 2020 and Euro 2020, which have now both been postponed by 12 months.
As well as the obvious inconvenience it will cause to the general public without one of the most popular forms of entertainment, especially while in isolation, these postponements will have a huge economic impact on various stakeholders. Broadcasters and bookmakers are expected to be hit hard for the simple fact there is nothing live to broadcast or bet on, as well as pubs already struggling from isolation guidelines now also missing out on the football crowd. Some estimates see a £2bn loss for the bookies alone as a result of the virus. Even after the peak of the virus, governments will likely be uneasy about large crowds at events until new cases are next to non-existent.
A prime example of the economic impact of these events can be seen in Japan, where the Olympic games have been cancelled after much deliberation . They were seen as, too economically beneficial to be cancelled, with the Japanese economy on the brink of a recession. However, Japan was experiencing mounting pressure from both athletes and organisers due to the virus’ impact on training and the surge in health concerns. This is the only time the Olympics have been delayed, though they have previously been cancelled due to war. Overall, like most industries the virus is going to cause a significant economic impact, with the future of many competitions such as the English premier league still uncertain at this point as authorities scramble to find viable solutions.
Sources; BBC News ‘Coronavirus: Prime Minister advises against mass gatherings’, Financial Times ‘Tokyo Olympic Games postponed until 2021’
Russia/Saudi Oil Trade war
Although the Coronavirus has understandably dominated the headlines for some time now, the ongoing tensions between Russia and Saudi Arabia are also of global significance, contributing towards the historic falls we are currently seeing. This dispute came to the forefront after Russia refused Saudi pleas to cut oil production in order to stem the fall in oil prices caused by the Coronavirus.
Although markets behaviour can be largely blamed on the pandemic gripping the world, a price war between two energy superpowers only exacerbates the struggle markets are facing. Threats to flood the market at lower prices caused the benchmark crude prices to plummet by more than 30 per cent last week. Both countries have the resources to and are likely to draw this spat out for the foreseeable future with neither side planning on meetings to discuss a truce.
In different circumstances, low prices have been a catalyst for higher demand, however with the global economy feeling the brunt of the Coronavirus, and no sign of it letting up in the short to medium term, economies may not react to the oil prices in the same way as they used to. Some estimates have reported 10% drop in global oil demand from last year, the largest drop in history. Although overshadowed by the Global Coronavirus crisis, this oil war could continue to relent for an extended period, with the last four price wars Saudi was involved in lasting at least a year.
Sources: Financial Times ‘Saudi oil war - the beauty is you can blame it on the Russians’, Bloomberg ‘The Saudis Have a High-Stakes Plan to Win the Global Oil War’
Most global airlines will be bankrupt in ten weeks
Due to the increasing numbers of people either un-able or un-willing to travel abroad, and the uncertainty, airline companies have taken a concerningly large hit. In a study conducted by the Centre for Aviation, an Australian consultancy firm, projected that due to the COVID-19 crisis, “by the end of May 2020, most airlines in the world will be bankrupt.”
As the coronavirus develops from an epidemic into a pandemic, the news seems to become worse and worse each day. As this news becomes more available to the general public, the subsequent effect on the travel and tourism industry is monumental. Whilst the above statement is a large statement to support, evidence suggests that this analysis is accurate; firstly, the airline industry was brought under the spotlight when Flybe went into administration on March 5th. Following this, there have been concerns with both EasyJet and Ryanair, who both operate on tight operating margins. Furthermore, the ban on most international travel has brought British Airways to look at grounding 75% of its fleet in the next two months. Unfortunately, the struggle is necessary for the greater good, but airline companies were always going to be the first to feel the impact of a world in isolation. The biggest concern for airline companies now is will COVID-19 continue to prevail beyond May? As airline companies have a sensitive reaction to consumer demand.
Sources: The Times ‘Most global airlines ‘will be bankrupt in ten weeks’, ‘Most airlines could be bankrupt by May. Governments will have to help’ Bloomberg ‘Coronavirus Could Bankrupt Most Airlines by End of May’
American Growth to shrink 5% by Goldman Sachs
As one of the most important global economies, the United States’ management of the COVID-19 outbreak is of high importance. The first quarter has seen both the S&P500 and the Dow Jones Index experience serious losses (S&P500 down 20.4% and the Dow Jones Index down 22.6% on black Monday) in a representation of how many US companies rely heavily on an international supply chain.
Because of the US market behaviour in the first quarter, analysts at Goldman Sachs are projecting the American economy to shrink by 5% in the second quarter of 2020. This is after the US figures for the Domestic Manufacturing Index posted results for the largest month-on-month decline on record and the lowest reading since March 2009. Furthermore, this research is supported by the current struggle between the general public and the private health care system. With the US in a phase of testing, only limited numbers of people are fortunate enough to be screened for COVID-19, which has a dramatic effect on the nation’s ability to contain. Fundamentally, the ways in which the US government continue to tackle the virus going forward will significantly impact the ways in which the economy response. I.e. if the government are too late on supressing the spread of the virus, the economic impacts will be much more significant.
Sources: The Times ‘American GDP to shrink 5%, warns Goldman Sachs’. Bloomberg ‘Goldman Sachs Predicts U.S. GDP to Shrink 5% in Second Quarter’
FTSE is heading for a nine-day losing streak
Since the Coronavirus sell-off first began, the FTSE 100 has fallen over 30% and the S&P 500 has fallen over 27% despite several leading central banks offering efforts to try and soften the economic blow from the virus. With the virus showing no signs of slowing across Europe, it appears the bull market that we have enjoyed over the last decade has come to an end. In addition to the FTSE 100 suffering significant losses, the UK’s mid cap index, the FTSE 250 has losses extending to nine days in a row which amounts to the worst run in over ten years.
The turbulences in leading stock market indexes are predicted to continue for the foreseeable future as the full extent of the economic damage is unknown and so it is not surprising that many investors are starting to worry. Analysts are also suggesting that the volatility will continue until a spike in Coronavirus cases is seen and a true trough in the market is realised. We are currently in a time of complete uncertainty and investments substantially dislike ambiguity around outcomes. The CBOE Volatility Index, otherwise known as ‘Wall Street’s fear gauge’ has recently soared to its highest level since the financial crisis.
No one likes to see the value of their portfolio fall in such a narrow space of time, however a positive to this is that investors can now buy into the market at almost a third of the price. The market might not rebound and recover within weeks to its original level, but overtime it is highly likely that it will go on to reach new highs and those patient investors will be rewarded. The damage from the virus will take some significant time to be undone but it is believed the markets will recover.
Sources; BBC News ‘Coronavirus: FTSE 100, Dow, S&P 500 in worst day since 1987’, ‘Coronavirus: UK stocks dive despite stimulus plans’, The Times ‘Markets still in grip of fever’, ‘FTSE forecast to open higher’.
NHS prepared for its biggest crisis yet
In light of the increase in Coronavirus cases in the UK, millions of operations are being postponed and patients are urgently being discharged from hospital and private operators have been called in to assist. The cancellation of ‘non-life-saving’ procedure is to ensure that more hospital beds and operating theatres become available for those patients who need urgent care and treatment for Covid-19. Currently there are only 5,000 respirators available in the UK’s hospitals to treat those patients whose respiratory system will suffer as a result of Coronavirus.
The most significant risk of the NHS dealing with the large influx of Coronavirus cases is that NHS staff will contract the virus, inevitably increasing cases and becoming super spreaders. However, NHS staff staying off work if they develop the commonplace symptoms such as a cough would exacerbate the staff shortages and could cause the serve to collapse. It is a very real feat that the hospital staff on the front-line could die from the exposure to coronavirus and lack of protective equipment. This fear is also being encouraged from reports of death levels amongst the medical staff in China and Italy as new figures show an extravagant level of contagion throughout the medical community.
Sources; The Times ‘Coronavirus: NHS doctors fear they will die for lack of safety equipment’, ‘NHS not ready to begin mass testing’ BBC News; ‘Coronavirus: GPs prepare for NHS's 'biggest crisis'
Disclaimer: This document represents the opinion of Reeves Independent only and is not intended as advice and no investment decisions should be made solely on the back of this email. Always seek independent financial advice before taking any action. Past performance is not a guide to future performance. All investments carry the risk that you will get back less than you put in.