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Paragon Commentary

Futures File: Pound, Pork & Coronavirus

Jan 31, 2020

Virus Spreads, Markets Volatile

The World Health Organization (WHO) declared the novel coronavirus a global health emergency after the outbreak expanded significantly this week, reaching 20 countries and sickening nearly 10,000 people, with over 200 deaths.

The designation by the WHO will mobilize resources to fight the disease, but the organization issued a stern statement against overreaction, warning against “measures that unnecessarily interfere with international trade or travel.”

However, there have already been significant impacts, with nearly 60 million Chinese placed under travel restrictions, while neighboring countries like Mongolia, Russia, and North Korea are closing borders to trade and migrants. These measures will severely affect the Chinese economy, and possibly global growth, if kept in place long term.

As scientists continue to study the outbreak, they are coming away with positive findings. The virus appears to have a shorter incubation period than originally feared and is less deadly than other similar outbreaks, which may lessen the ultimate impact.

As a result of the disparate signals between government reactions, scientific research, and public concern, markets see-sawed all week, with stocks and oil near their lows on Friday.

 

Pork Market Slashed

Hog futures collapsed this week as markets grew increasingly worried about U.S. exports of pork.

The market rallied into the new year on the expectation of the trade deal with China but have been disappointed with a lack of immediate sales. Analysts had been concerned about China’s ability to meet its import obligations under the deal, and the coronavirus outbreak has exacerbated worries about future Chinese demand.

As a result, hogs lost over ten cents per pound, a loss of 15%, with the February contract trading Friday near a one-year low at 58 cents per pound.

 

Brexit Day Leaves Pound in Limbo

The United Kingdom is officially leaving the European Union on January 31, but still much remains unknown about the future of the relationship.

As part of the negotiated exit, the UK will continue to be part of the EU’s single market until the end of the year, allowing for a free flow of goods and people. Leaders are meeting in March to determine what the long-term deal will be, leaving some investors worried about Britain becoming economically stranded.

For now, most market watchers are still optimistic about a deal, with the British pound worth $1.32, near the highest level of the year.

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