As Coronavirus Stifles China, Economic Logjams Build Worldwide

For some, the decline in copper is an ominous sign: Copper has long been considered an unofficial leading indicator of the direction of the global economy, because of its close connection to the industrial sector.

On Tuesday, the Federal Reserve chair, Jerome H. Powell, told House Financial Services Committee members that the central bank was “closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.”

Whether the downturn is a blip or a serious shock is as much a question of epidemiology as economics.

If the spread of the virus starts to slow — as many expect it will — commodities will most likely rebound as production returns to normal and inventories that have been built up over the past few weeks gradually shrink.

“A lot of what’s happened in some of these commodity prices is more speculation that it gets worse before it gets better,” said John LaForge, the head of real asset strategy at Wells Fargo Investment Institute. “My guess is that commodity prices bounce pretty quickly.”

Others are not so sure.

Mr. Morse, at Citigroup, said several key markets — like crude oil — had already been showing softness, suggesting that the global economy was weak even before the virus hit. That could complicate any quick rebound for commodities prices.

“The market has been thinking that there’s going to be a V-shaped recovery at some point,” he said. “And we don’t think that’s in the cards.”

Article source: https://www.nytimes.com/2020/02/11/business/china-coronavirus-commodities.html?emc=rss&partner=rss