Could President Donald Trump’s carefully crafted economic recovery be upended by the rapidly spreading, deadly coronavirus?
How will it affect the China phase one trade deal as the number two economy in the world struggles to contain the outbreak? Will it derail China’s ability to attain the goals set out in the agreement?
The U.S. economy has maintained its strength with record-setting high levels of employment. The stock market has rebounded since the 2008 financial crisis, increasing the net worth of many Americans.
CNBC reported Tuesday that The Conference Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. Lynn Franco, senior director of economic indicators at The Conference Board said consumers are feeling more confident about their job prospects in the future.
Trump has been riding a wave of positive economic news that has buoyed his chances for reelection, despite an ongoing impeachment trial.
The Chinese and U.S. economies are inextricably intertwined after millions of US manufacturing jobs and thousands of major companies relocated to China over several decades. Companies like Apple are bracing for inevitable supply chain disruptions.
“If it lasts longer than four weeks, it becomes a supply chain story,” said David Bahnsen, chief investment officer at the Bahnsen Group.
Apple has roughly 10,000 direct employees in China, across its retail and corporate entities. Its supply chain also has a few million workers manufacturing products like the iPad, iPhone and Apple Watch.
The death toll from the coronavirus outbreak in China has risen to more than 100 and the virus has spread throughout China. It’s estimated that about 4,500 people have contracted the virus so far. The rapid spread of the large family of viruses, which can trigger severe acute respiratory syndrome, is rattling world markets.
The epicenter of the outbreak is Wuhan, a major river port for freight. It is bisected by the Yangtze River and its central location means that consumer goods as well as inputs for manufactured products could be caught in shipping limbo.
The deadly virus has already spread to other countries, including Thailand, Hong Kong, Taiwan, Australia, Macau, Singapore, Japan, South Korea, Malaysia, France, Canada, Vietnam, Nepal and the United States.
The health minister of China said the coronavirus is increasing in its virulence. People can be contagious before they even exhibit symptoms. This is dangerous, as it makes people appear healthy when they’re not.
More than 70 cases have been confirmed outside China, including five in the U.S. None of those patients have died.
Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, said 110 people in the U.S. are “under investigation” for the virus but human-to-human transmission of the virus has not been documented in the U.S.
Americans are rushing to by face masks, but scientists say they do not offer protection from the virus. There is no vaccine, although drugmakers are under pressure to create one, but it may be several weeks before one is made available.
Chinese economists expect that businesses like retailers, restaurants, travel and transportation-related companies will lose business. The outbreak started during China’s biggest travel season of the year.
Experts in Chinese commerce said trade activity and manufacturing could be disrupted, depending on the scope and severity of the disease.
On Tuesday the U.S. Treasury yield curve, measured by the gap between yields on three-month and 10-year bonds, inverted briefly for the first time since October.
It is a reflection of rising concern among investors that the outbreak of the virus in China will have global economic impact.
That three-month/10-year part of the yield curve is closely watched as a recession indicator. It inverted in March last year for the first time since the financial crisis, a signal that a recession was likely to follow in one to two years.
It has traded in positive territory since October, when optimism that the United States and China would reach a trade deal boosted risk sentiment.
An inverted yield curve is a situation in which long-term rates are lower than short-term rates. Recession fears can trigger reduced interest rates in the near- to -mid-term. Markets are starting to speculate the Fed could bring interest rates down by summer.
The yield curve has inverted before every U.S. recession since 1975, although it sometimes happens months or years before the recession starts.