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Thanks to the fear and the fact that more and more investors realized how serious the situation in the world is and what kind of impacts it can bring in the future, we see now how this “coronavirus” literally decimates markets over the last weeks.
It’s not surprising that the most impacted industries are airlines, restaurants, and services, now highly interconnected, depending on each other.
The ways, how we were used to working on a daily basis, as well as the implemented modes of work – this is all history now, and the main question is – what’s next and how the modern market economy is going to change? At this moment, we don’t know.
So, let’s at least summarize now those few facts we’re aware of.
Ongoing trade wars
Despite the spreading coronavirus, global powers, as if they did not realize how serious this situation is, they still give preference rather to global economic interests than to the solution of issues caused by COVID-19 within their economies.
Fight for oil market share
Recently, Russia refused to connect to other countries that wanted to react to the dropping demand, caused by the coronavirus, by a decrease in the total oil supply.
According to estimations, in this way, Russia intended to reduce the market share of shale oil drilling companies markedly (by keeping the same supply along with a drop in demand -> prices would drop “mildly”), which could bring larger market share to Russia as a consequence (explanation: shale oil drilling is profitable only when the price of oil moves above a certain level).
However, Saudi Arabia reacted oppositely to such a step immediately, increasing its oil drilling activity, thus bringing the price even lower by more than half.
Result: Shale oil supply limitation occurred, but such low price of oil had an adverse impact not only on the Russian economy, but also on other oil-exporting countries.
U.S. – China trade war
The trade war of U.S. and China is not calming down even at the time of coronavirus. The U.S. President and his administration are coming with other possible scenarios of how to limit China in the field of modern technologies and the pharmaceutical industry, all the time, what could help the falling U.S. economy potentially.
Result: Despite all the efforts of the U.S., China still resists, and moreover, Huawei intends to introduce a new model of smartphone soon, not only avoiding to use google play app, but even more, it will use a Chinese operation system.
Note: The U.S. faces the biggest rise in unemployment over the last 40 years, and at the same time, it became the epicentre of the Covid-19 disease. Therefore, the U.S. we see now, is not the same U.S. we saw at the beginning of this year.
Brexit negotiations stopped
Negotiations between the United Kingdom and EU members were stopped due to the coronavirus pandemic. At first, they should have been held in London, while two weeks later, in Brussels.
Unfortunately, not even the top politicians of the UK avoided the Covid-19 virus and therefore, both parties are now looking for a safer solution that could allow them to prepare necessary agreements on time, so the UK could leave the EU as expected.
What kind of scenarios could arise in relation to the development of respective markets and economies now?
Scenario 1 – quick return to “normal” conditions
This is a scenario when the markets are expected to return to standard conditions as fast as they dropped after the coronavirus pandemic arose. On their charts, traders could see (with a little exaggeration) V-shaped price formations.
This scenario could arise in case of more stable markets where, not hit by extreme rise of unemployment (we can’t expect that the market is going to return back quickly in case the unemployment rate jumps markedly).
Scenario 2 – short-term stagnation and subsequent growth
Short-term stagnation and subsequent growth seem like the most realistic scenario at this moment in different markets. We may expect that it will take some time to the markets, impacted by the COVID-19 pandemic, to stabilize (they will stagnate rather), and only thereafter, they will start to grow again.
Scenario 3 – long-term stagnation
The scenario that could arise in case the situation related to the pandemic may not be solved from a long-term perspective, and new and new cases will come. For the markets, it could mean a long-term stagnation and a relatively hard return back to normal.
Scenario 4 – deepening crisis
The worst possible scenario that could arise in markets. It may occur if an additional factor is added to the coronavirus crisis, deepening the current problems even more. In such a case, it could cause fatal impacts for markets that are already weakened by COVID-19.
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About the Author
Team Purple Trading
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