In the last week, there were two interesting topics. One was planned, the other one obviously not. I am talking about the World Economic Forum in Davos and the outbreak of the Corona virus in China.
World Economic Forum (WEF) in Davos
Since 1971, when the event was created, the event has happened every year in Davos. Davos is a mountain resort in Switzerland. Around 3000 business leaders, international political leaders, economists, journalists, et cetera gather at Davos for five days of discussing global issues. The WEF is funded by over 1000 companies. The theme of this year was: stakeholders for a cohesive and sustainable world. WEF this year focuses on how to deal with climate change; mainly about how to get the carbon emissions down. Trump and Greta Thunberg are the symbols of this discussion. Trump is focused on the economy and job market and does not care too much about climate change. He does not really believe in it and sees dealing with the climate as a side job. Not as a main priority. Greta Thunberg is only 17 years old and became famous in 2018 when she was as a schoolgirl in Sweden striking day after day before the Swedisch Parliament. Her goal was to get more attention to climate change from politics.
Thunberg was at Davos as well. She has been stating over and over again that companies and the world are not doing enough to fight climate change. She is really angry at Trumps ideas. Trump finds the whole discussion funny and said: “she beat me out on Time magazine”. And he told her to focus on other countries than the US.
Anyway, most agree that we need stricter regulations and that we need focus on renewable energy. But there are a lot of different opinions on how far we need to go. We know that oil is needed for many more years and that we cannot go from fossil fuels to renewables overnight. It is a slow process and that needs to be accepted. The WEF in Davos is a useful event as it shapes new discussions and ideas and makes it easy for governments and companies to see where they are currently standing.
Though, there is no immediate effect on stock markets. These kind of forums are very long-term focused and are not expected to bring much extra day-to-day volatility.
The Corona virus has a more immediate influence on the stock markets. It is a disease that was unexpected and comes a bit out of nowhere. As far as we know now, the disease is related to the SARS virus that caught the world in 2003. So far 25 people have died from the Corona virus and over 800 people have been contaminated. The actual number might be much higher. Markets need to price in a certain most likely scenario. Calculating that scenario is very difficult. As such, markets might move on it. What asset does move the most on the Corona virus turmoil?
Oil has been hit the hardest. The reason for that is that China is closing cities. Currently there are already 10 (large) cities closed to the rest of China. To avoid that the disease spreads. Quite some airlines do not fly to the city where the disease was first discovered: Wuhan. The demand for oil is and will be hit by the virus. Less traveling means less oil needed means lower oil price. That is exactly what happened. Crude Oil has dropped this week from around $58 towards $54.50. A decline of 6%. As long as the disease is not contained well, oil price might remain weak. I have read some research reports that the price of Crude oil might drop towards $50 in case the Corona virus becomes a large problem.
To be continued.