BHP Sees Next Six Weeks as Key For Virus Hit to Commodities
Comment of the Day

February 18 2020

Commentary by Eoin Treacy

BHP Sees Next Six Weeks as Key For Virus Hit to Commodities

This article by David Stringer for Bloomberg may be of interest to subscribers. Here is a section:

If the impact of the outbreak can’t be contained this quarter, annual growth forecasts will need to be revised down, Huw McKay, BHP’s vice president of market analysis and economics, said Tuesday in a blog post. “This would then flow directly through to lower commodity demand and price expectations.”

BHP forecasts China’s growth to slow to about 6% this year and as low as 5.75% in 2021 based on a swift recovery from the virus outbreak. In a worst-case scenario that combined a lingering impact from the virus and a re-escalation of trade war tensions, the nation’s economic expansion this year could slip to 5.5%, the miner said.

Goldman Sachs Group Inc. and Macquarie Group Ltd. are among banks who’ve cut China growth forecasts for both the first quarter and the full year as a result of the outbreak. China’s gross domestic product will grow 4% in the first quarter, according to the median of 18 forecasts since Jan. 31, which would be the lowest level since 1990.

Eoin Treacy's view

The working assumption most investment models are relying on is the trajectory of the coronavirus outbreak and recovery is going to follow that of SARS. Even though the number of cases and deaths is larger and the coronavirus is more contagious, the measures taken to contain it have been much more aggressive. Therefore, the majority of investors have concluded that a V-shaped recovery is the most likely scenario.

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