Recovery is not that simple

So the Dow Jones had a rally yesterday and part of the world seems to believe or hope that the worst is over. Perhaps examining the reasons will change some views , firstly no market travels in the same direction for ever and there will have been some short sellers amongst the mass of longs getting out of their positions. Secondly it seems the consensus is that the worlds central banks will save the day by cutting rates and injecting liquidity into the markets. However the slight floor in yesterday’s euphoria is the fact that this action will be necessary because however you look at it and recent Chinese data proved that the global economy will suffer a huge , if temporary , slump area by area as the Coronavirus spreads and measures are taken to halt the spread. Northern Italy has almost ground to a halt and now it seems the bulk of new U.K. cases are connected to people who have just returned from Italy. Mexico has now been hit and President Trump’s wall will not halt the spread up into the southern USA. Car sales are collapsing along with many other key sectors and that will spread as people stay at home , drastically cut travel and the purchase of hi ticket non essential goods will be that last thing on most people’s minds especially as the media whip up fear and panic. So to the world of metals, falling demand , nothing happening on infrastructure projects and the prospect of months of disruption to the supply chain is not going to encourage prices to rally. Inventory will start to build and whatever games may be played prices are like to come under pressure to the downside and the much hoped for turnaround in prices fuelled by growth and infrastructure projects may well find itself being delayed until the end of Q3 or possibly further. The reality is the virus will spread and cause the same slowdown as recent Chinese data showed and so geographic area by geographic area the rest of the global economy looks set to suffer the same fate. There is currently no sign of a vaccine becoming quickly available and the belief or hope that the central banks of the world can wave a magic wand and mutter some Harry Potter like spell of “ correctus economus” could be very flawed thinking indeed as one corrective bounce in a market that has been falling endlessly should not be regarded as the end. Maybe the quote by Sir Winston Churchill of “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning” is a more practical way of viewing the current situation