Market Spice: A Supply Chain is as Strong as its Weakest Link

By Delany Higgins 

Market Spice: Week of March 2nd, 2020 

The spread of COVID-19 caused further volatility in markets this week, with the Organisation for Economic Cooperation and Development warning that the outbreak could halve global economic growth for the year.  The OECD cut their global forecast to as low as 1.5%, from 2.9% prior to the outbreak. Oil was particularly hard hit. On Wednesday, the Organisation of the Petroleum Exporting countries  revised its estimate for global oil demand growth to 0.99 million barrels of oil per day, down from 1.22 million estimated the previous month. 

Image Source: Gina Ferazzi/LA Times


  • With the Chinese government continuing its economic support measures, the Shanghai Composite ended the week up 5.4%, and the CSI 300 up 5.0%, despite falls later in week.  
  • Consistent with expectations, China’s manufacturing purchasing managers index dropped to 35.7 from 50.0 in January, signalling a substantial first-quarter contraction. The services PMI fell even more dramatically, confronting legal restrictions on human-to-human interaction. It dropped 25.3 points in February.    
  • Bank of Japan Governor Haruhiko Kuroda stated that the central bank ‘will closely monitor future developments, and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases’. The details of the BoJ’s plans, however, were not made public. 
  • The Japanese yen strengthened against the dollar, which suffered from U.S. Treasury yield drops (below). 
Image Source: Geert Vanden Wijngaert/Bloomberg


  • Despite some gains early on in the week, the STOXX 600 closed 2.2% down, the DAX 2.77% lower, and Italy’s FTSE MIB suffered a 5.35% loss.
  • Italy, confronting the most substantial COVID-19 outbreak in Europe, passed an $8.4 billion stimulus bill, with a substantial portion directed to the hardest-stricken northern areas. 
  • European Central Bank President Christine Lagarde signalled increased ECB willingness to respond to coronavirus concerns, in comparison with the previous week. 
  • U.K. – E.U. negotiations regarding post-Brexit trade faltered this week, particularly over such matters as the European Court of Justice and fishing rights, with E.U. chief negotiator Michel Barnier commenting that there were ‘very serious divergences’ between the two sides, and U.K. representitives likewise signalling concern. 
Image Source: AP/Financial Times

North America 

  • On Tuesday, in an effort to provide relief from the economic effects of the coronavirus, the U.S. Federal Reserve cut interest rates .5%. In a perhaps unanticipated result, the stock market responded with a sharp sell-off, with some speculating that the Federal Reserve were aware of potential threats not yet priced into the market. 
  • U.S. Ten-Year Treasury yields dropped below 1% for first time in history, hitting a new low of .66% on Friday. 
  • On Friday, President Donald Trump signed a $8.3 billion emergency stimulus bill, with National Economic Council Director Larry Kudlow stating that the administration was considering measures such as tax deferrals to help sectors most deeply impacted by the virus. 
  • The U.S. large-cap indexes remained volatile but recorded gains, with the strongest performances in the health and utilities sectors, and the weakest in oil.
  • Exxon Mobil Corp. CEO Darren Woods made headlines on Thursday, commenting that some competitors’ moves to set carbon emissions caps by ‘setting targets and then selling assets to another company so that their portfolio has a different carbon intensity’ was not actually helping to address climate change, suggesting that energy sector leaders should focus instead on clean energy innovations, such as carbon capture. 

Other Markets

  • Russia and OPEC failed to agree on a deal to cut oil production, and oil prices dropped 9.4%, reaching their lowest level in nearly three years.  This marked the worst day for oil since the 2008 financial crisis. 
  • Spreading cases of COVID-19 in Brazil pushed the real to new lows against the dollar, and the Bovespa down 6.0%. Other Latin American currencies suffered as well. 
  • Some gained from the drop in oil prices; the Turkish BIST 100 rose 3.4% over the course of the week. 

Cover Image Source: Eric Baradat/AFP via Getty

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

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