10th Dec 2023


What does coronavirus 'Black Swan' mean for markets?

  • The smartest people on Wall Street and beyond are struggling to figure out whether the epidemic will lead to shocks in the short term, or whether it is a longer threat that will radically change the lives of millions of people around the world (Photo: Ahmad Nawawi)

Global stock markets are in a fever. The growing public health crisis around the globe has distressed financial systems and raised concerns that the economy is moving towards a sharp slowdown.

The Black Swan of the coronavirus infection epidemic launched a chain of events in the markets, one of the links of which was a dramatic drop in oil prices.

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These events will have a long-term impact on the global economy, requiring substantial adjustment of investment strategies, while not forgetting about short-term speculations on the market rebound.

Quotes are falling. Economies are getting exposed. And at a pace that can make the global financial markets dizzy. There are no exceptions - the rapid exchange rally, which was mainly caused by liquidity, has long been on a fragile foundation.

The massive dumping of shares, comparable only to the collapse of the financial market in 2008, provoked a frantic race for those assets that were considered reliable during times of crisis, including government bonds and gold.

Yields on US Treasury bonds, considered the most reliable of the reliable, fell to a record low.

The magnitude of the panic and the potentially widespread global economic damage caused a reaction from central bankers, beginning with Bank of England head Mark Carney and US Federal Reserve chairman Jerome Powell, who took an unusual step by issuing a statement designed to reassure Americans.

Analysts, trying to assess the consequences of what is happening in their economic forecasts, cannot explain how all this will affect individual economies or where markets can calm down.

The coronavirus swan turned out to be so black for financial markets that even inveterate optimists among brokerage company analysts turned off their "Buy on dips!"


The record demonstrates how difficult it is for global stock markets and business to remain solvent, adequately capitalised going-concern once a crisis of confidence strikes.

With capital markets now frozen to in disarray, and the global economy seemingly headed for a protracted downturn, many companies that relied on the continuance of these conditions may be forced into financial distress or bankruptcy.

The smartest people on Wall Street and beyond are struggling to figure out whether the epidemic will lead to shocks in the short term, or whether it is a longer threat that will radically change the lives of millions of people around the world.

We might expect a recession in Europe and southeast Asia (expert consensus from -0.1 percent for Japan [UBS], to -1 percent for Korea, Nomura, and Japan [JPMorgan], zero growth in China (year-on-year spread from + 2.5 percent Goldman Sachs to zero Nomura and Bank of Montreal) and minimal growth in the USA (range of estimates from -0.2 percent Moody's to + 0.8 percent JPMorgan).

The failure in the economies will not end with a V-shaped U-turn, as with SARS, and we should rather wait for a U-shaped exit from the crisis, and in China, recovery will go faster due to a more aggressive reaction of the authorities "the old fashioned way": through infrastructure costs, lower rates , assistance to regions and affected sectors (air carriers are already nationalised).

Core inflation might jump shortly on problems with trade chains, but falling demand and prices for oil and other raw materials will revive the risk of deflation at the level of general inflation.

Central banks, of course, will prefer to respond to the lowest of inflation indicators and appeal to the fall of the inflation premium imputed in bonds.

The inevitable collapse in international trade and the long-term rethinking of China's role as the only major hub for the production of consumer goods and electronics are inevitable.

A collapse in the commodity markets might be expected, multiplied by the de facto collapse of OPEC + and a return to the policy of "extracting and selling everything we want."

But stimulus measures from China and the collapse of shale oil in the United States might lead to a sharp compensating rally in the summer and autumn.

Many resource-dependent countries (Australia, Brazil, South Africa, Chile and, possibly, Russia) can also slip into a technical recession and currency crisis.

Aggressive and fairly coordinated measures of state assistance to economies and markets might help return the global economy to moderate growth, but the "cartridges" spent by central banks to fight the virus will be sorely missed when a wave of corporate defaults sweeps markets - this might happen with a lag of several quarters and even after economic recovery.

Author bio

Elina Morhunova is a European and international business lawyer, and assistant to Lithuanian Renew MEP Petras Austreivicius.


The views expressed in this opinion piece are the author's, not those of EUobserver.

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