Alibaba warns coronavirus is hitting its business
Speaking at a results conference call, Alibaba CEO Daniel Zhang warned that the coronavirus outbreak is having a “significant impact” on China’s economy and hurting the company. A significant number of packages have not been delivered on time due to merchants and logistic companies being forced to stay closed for long after the Lunar New Year, while orders to restaurants and food delivery services have fallen Zhang said.
13 Feb 2020 16.12 GMT JCB cuts production amid component shortage from China JCB, the UK maker of yellow diggers, is cutting production and working hours at its UK factories as it faces component shortages from China. JCB is planning to cut working hours for around 4,000 employees from 39 hours to just 34 from next Monday. Overtime has also been suspended. Staff won’t take a pay cut, though - they’ll have to work the hours back later this year. The problem is that a quarter of JCB’s suppliers in China are still closed, due to virus-related restrictions, so they can’t ship enough components to Britain. I think this makes JCB the first major UK manufacturer to cut output because of Covid-19 -- airlines such as British Airways have already cut flights to China. JCB chief operating officer Mark Turner explains: “The disruption to the component supply chain in the UK comes at a time when demand for JCB products is very strong, so while this course of action is very unfortunate, it is absolutely necessary to protect the business and our skill base. “Production in the UK has so far been unaffected by the situation in China. However, more than 25% of JCB’s suppliers in China remain closed and those that have reopened are working at reduced capacity and are struggling to make shipments. “It is therefore clear that the inbound supply of certain components from Chinese partners will be disrupted in the coming weeks as they seek to replenish their stocks. “This inevitably means we will not have the required amount of parts needed to build our forecast number of machines in the short-term. “These measures will ensure that, while we will produce machines in lower than anticipated numbers, we will do so with the same number of employees, whose skills we will need to fulfil customers’ orders when the situation returns to normal.”

Updated at 16.14 GMT

13 Feb 2020 14.42 GMT Wall Street opens lower A street sign for Wall Street. Photograph: Lucas Jackson/Reuters The New York stock market has opened in the red, as traders respond to today’s jump in coronavirus cases and deaths. Dow: Down 133 points or 0.45% at 29,417

S&P 500: Down 11 points or 0.33% at 3,368

Nasdaq: down 47 points or 0.5% at 9,678



13 Feb 2020 14.38 GMT Economists at HSBC have cut their forecasts for China’s economic growth in the current quarter - for many of the reasons cited by Alibaba today. Reuters has the details: HSBC said on Thursday it had lowered its first-quarter forecast for mainland China’s economic growth to 4.1% year-on-year from 5.8% due to the fallout from coronavirus. The bank also cut its China full-year growth forecast to 5.3% from 5.8%, adding the impact was already starting to be felt in tourism, trade, supply chains and elsewhere. HSBC lowered its full-year estimate for global growth to 2.3% from 2.5%, adding it expected the brunt of the impact in the first quarter, with some improvement as the year progresses.



13 Feb 2020 14.08 GMT CEO Daniel Zhang also revealed that Alibaba has been procuring medical supplies from around the world, and donated more than 40 million units to Wuhan and other affected cities (that’s via Yahoo! Finance) Zhang adds that Alibaba are “monitoring the challenge and identifying opportunity as the situation evolves.” Freshippo, its supermarket chain, has seen a big jump in online orders as customers try to get fresh goods, groceries, and daily necessities delivered to their homes.

But the company is struggling to satisfy all these orders due to delivery constraints.



13 Feb 2020 13.27 GMT Alibaba: 'Black Swan' coronavirus outbreak is hurting business Delivery worker for Alibaba’s Hema Fresh chain rides his electric bicycle on a road following an outbreak of the novel coronavirus in Wuhan. Photograph: STRINGER/Reuters Newsflash: The coronavirus outbreak is a “Black Swan event’ which is having a ‘significant impact’ on China’s economy, according to its biggest company. Daniel Zhang, CEO of e-commerce giant Alibaba, has warned that the outbreak poses near-term challenges to its business. Speaking on a conference call to discuss Alibaba’s latest results, Zhang is explaining how operations have been hurt by the virus, which has forced factories and offices to stay closed for longer after the Lunar New Year. He says: Chinese merchants and logistic companies have been prevented from resuming work after the Lunar New Year.

A “significant number of packages” have not been delivered on time over the last two weeks.

Orders to restaurants, food delivery firms and other local services have “declined noticeably” Zhang adds that it is too soon to quantify the full impact of the outbreak on Alibaba, and that the company is “closely monitoring the challenge”. This is a useful insight into the impact on the Chinese economy, and helps explain why the IEA has slashed its oil demand forecasts today.

Updated at 13.41 GMT

13 Feb 2020 13.12 GMT Ralph Lauren says coronavirus will hurt sales Ralph Lauren. Photograph: Miguel Flores Vianna/Home Box Office (HBO) Newsflash: US fashion group Ralph Lauren has warned that its profits will be hurt by the coronavirus crisis. It says that approximately two thirds of the Company’s stores in the Chinese mainland have been temporarily closed over the past week, and is bracing for further lost sales as travel is restricted in Asia and parts of China. This will knock up to $70m off its sales in the current quarter, and up to $45m of operating profits from Asia. Supply chain disruptions in China could also hit orders globally, it warns. Executive chairman Ralph Lauren, which founded the firm, says:

“Our hearts are with the many impacted by this virus. Our number one priority is keeping our teams, partners and consumers safe.”



13 Feb 2020 12.50 GMT Pound hits two-month high after Javid resigns The City has responded to Sajid Javid’s shock resignation by driving sterling to a two month high. The pound has hit €1.20 against the euro for the first time since December’s election. Why? Because Boris Johnson’s team may now have a tighter grip on the Treasury, letting them drive through infrastructure spending projects, slash taxes and raise borrowing. That could result in higher growth -- good for the pound, and making interest rate cuts less likely. The pound vs the euro Photograph: Refinitiv Paul Dales of Capital Economics says: We already thought that the Budget on 11th March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1.0% is in the pipeline. It’s now possible that the Budget will provide a bigger bang.



13 Feb 2020 12.24 GMT UK has a new chancellor.... Back in the City, investors are digesting the shock news that Sajid Javid has resigned as Britain’s finance minister. Javid has quit, it seems, after refusing to sack his officials and work with a team from number 10. It means a sudden promotion to chancellor for Rishi Sunak (previously chief secretary to the Treasury), with less than a month until the budget! Sunak has previously worked for Goldman Sachs, and the Children’s Investment Fund (a hedge fund). The Rt Hon Rishi Sunak MP @RishiSunak has been appointed Chancellor of the Exchequer @HMTreasury pic.twitter.com/OTYOkujnbo — UK Prime Minister (@10DowningStreet) February 13, 2020 Like the old chancellor, the new one Rishi Sunak has a City background: ex Goldman Sachs analyst, also worked at Sir Chris Hohn's TCI hedge fund — Philip Stafford (@staffordphilip) February 13, 2020 The move has pushed government bond yields up, as the City anticipates that the Number 10 may push through more infrastructure spending by overriding Treasury concerns about borrowing. Andy Sparrow’s Politics Live blog has all the action on a dramatic reshuffle day in Westminster. 'No self-respecting chancellor would accept those terms', says source close to Javid - https://t.co/1yzRyJdUcg — AndrewSparrow (@AndrewSparrow) February 13, 2020

Updated at 12.28 GMT

13 Feb 2020 11.42 GMT Financial data firm MSCI has warned that coronavirus could have a much bigger impact on the global economy, and the markets, than SARS back in 2013. In a new report, they point out that China’s share of the world economy is much more significant, so companies across the globe will feel a knock-on impact. They write: The number of people infected and affected by the coronavirus continues to grow globally. Governments, as well as agencies such as the World Health Organization, are working tirelessly to contain, and ultimately defeat the virus. In China, local governments have locked down cities and businesses and restricted travel. And the general public has adopted voluntary home quarantine. The human toll has been steep. As with many crises, the repercussions of the coronavirus can also be felt in the global economy and the financial markets. Many observers compare the coronavirus to the 2003 SARS epidemic. While this can provide useful insight, there are differences between the two periods to consider. China is a much bigger part of the global economy and markets than it was 17 years ago. China’s share of global trade rose to 11% in 2018 from 5% in 2003, based on World Bank statistics. Meanwhile, its share of the MSCI Emerging Markets Index has risen to 34.3% from 7.86% in 2003. MSCI report into coronavirus Photograph: MSCI The chart above also shows that the Singapore, Hong Kong, Taiwan, Australia and Korean stock markets are all most linked to China.



13 Feb 2020 11.21 GMT The stock market selloff is accelerating, with European markets down 1% and the UK’s FTSE 100 down 1.5%. European stock markets, 13 February Photograph: Refinitiv The IEA’s oil market forecasts, and the EC’s gloomy comments on coronavirus, are both a factor. But traders are also alarmed by a big jump in cases overnight --including an extra 254 deaths in Hubei province and 15,000 extra confirmed cases. This increase follows a change in methodology used by China’s authorities -- so investors want to see whether cases keep rising sharply, or tail off. Seema Shah, chief strategist at Principal Global Investors, explains: If the change in methodology does result in a rise in the growth rate of reported cases, market sentiment will inevitably deteriorate, reversing the more upbeat tone of recent days as markets had become increasingly reassured that the virus will soon plateau. Markets will be very closely watching the number of new reported cases over the coming days. Overhanging the latest report is also the suspicion that authorities have been supressing news of the true severity of the infection, potentially re-inflaming the spread of fear via social media once again. As long as investors are questioning the credibility of “official” virus-related news flow, they will struggle to regain confidence in any potential growth rebound. Markets are extremely vulnerable to negative news flow around the coronavirus. Risk assets will continue to be volatile and susceptible to sharp moves as long as sentiment rules the day.



13 Feb 2020 11.08 GMT Cailin Birch, global economist at The Economist Intelligence Unit, predicts that oil prices will remain at current low levels until the summer -- and longer if the coronavirus crisis worsens. Here’s her take on the IEA oil demand forecasts:

The outbreak of the coronavirus in mid-January has significantly dented the outlook for global oil demand in 2020, and therefore oil prices. The oil market remains highly sensitive to news reports on the Chinese authorities’ attempts to contain the virus; the average daily price of Brent crude lost nearly 20% of its value between January 20th and the start of February, as the seriousness of the outbreak became clear. Since then, daily prices have risen and fallen in line with the assessment of the infection rate.





The announcement on February 13th of more than 14,840 new presumed infections in Hubei province, which was partially due to a shift in diagnostic criteria, will send prices down slightly in the near-term. Assuming that the virus is contained by end-March, which scientific literature from China suggests is a strong possibility, The Economist Intelligence Unit expects Chinese GDP growth to rebound in the second half of 2020, after a very weak first half. We expect the price of Brent crude to stay below US$60/b for the first half of the year, before making a modest recovery to US$65/b in the third quarter. Nonetheless, risks to this forecast are primarily to the downside, and we are not out of the woods yet.

