The market is starting to wake up to the wider impact of the coronavirus.
Apple has warned that disruption caused by the outbreak will hit its sales for the first quarter of this year.
Presumably, if Apple is suffering from higher levels of disruption than expected, then a lot of its related companies (and plenty of unrelated ones) are suffering too.
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Ah well – there’s always central banks to save the day.
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Apple will just be the first of many warnings
Smartphone and software giant Apple has warned that the coronavirus outbreak will mean its sales miss expectations for this quarter.
Apple had already taken into account a potential hit from coronavirus when it issued its sales guidance in late January. However, it looks as though the disruption will be even greater than expected.
The company had been assuming that things would return to normal after 10 February, when China got going again after the new year break. That’s not the case. Apple is “experiencing a slower return to normal conditions than we had anticipated”.
On the supply side, there’s been a slowdown in manufacturing, which will result in “worldwide iPhone supply” being “temporarily constrained”. On the demand side, outlets in China have been shut down or are operating on reduced opening hours – and there are many fewer customers in any case – so that’s going to hit sales too.
Now, I don’t think this should really come as a huge shock. The coronavirus may or may not be contained. It may or may not turn into a scary global pandemic. But it is clear that it has already had at least some impact on the Chinese economy. And China matters these days.
So if you are a massive multinational with suppliers and customers across the globe, and you are working in a market that is so heavily saturated with your products and your presence that every single sale matters, then you are bound to take some sort of hit from the coronavirus.
And if Apple is feeling the pain, then it can’t be the only company. After all, Apple is run relatively competently as far as I can work out. If it hasn’t been able to shrug this off, then there are lots of companies who will probably be in even more trouble.
I imagine that we’ll see a lot of other similar warnings in the weeks and months to come. Hopefully the worst of the coronavirus has peaked now in terms of new infections, but the disruption will likely continue for some time yet.
So what does that mean for markets?
Central banks can’t cure coronavirus but they can boost asset prices
Clearly, any given profit warning will hit the issuing company’s shares hardest. And with economic data in the likes of Japan, Singapore and South Korea looking very wobbly indeed, I can see potential for markets to take a jolt lower as the practical hit from the coronavirus becomes clearer.
However, the flipside is that the bigger the problems, the more likely we are to see central bank or government action.
This is not to say for a moment that central banks can cure coronavirus. Of course they can’t. Rather, it’s to say that "to a man with a hammer, every problem looks like a nail”. And if you focus on asset prices rather than the health of the economy, then I think it’s very hard to deny that cutting interest rates and printing money boosts asset prices.
And yes, I realise that I might be sounding like a stuck record by this point in time, but it’s worth wrapping your head around this. All roads lead to money printing.
The economy falters? Print money. The stock market panics? Print money. An exogenous event threatens global demand? Print money.
The reality is this: it doesn’t matter how bearish you might be or how good a rationale you have. If the printing and the financial repression continues, it’s very hard to see how you get anything beyond a minor correction in markets.
So if you’re looking for triggers as to how this bull market might end, then you have to consider the sort of event that money printing can’t fix.
The most obvious one to me is an upsurge in inflation. Which of course, is what money printing is ostensibly designed to promote.
Will we ever get this upsurge in inflation? I don’t know, but I suspect that 2020 is when we start to see governments deciding to give it a really good go. And between them, coronavirus and climate change will give them all the excuses they need to fuel a money-printers’ crusade.
