Extended holidays are not much fun

Posted by: Paul Donovan

27 Jan 2020
  • Risk assets have weakened as the coronavirus has spread. China is extending the lunar new year holiday three days, to 2 February. As China has rapidly increased its role in global supply chains, the lunar new year holiday has had increased implications for manufacturing activity outside China. A short extension will offer only limited disruption to global manufacturing, but should not be ignored.
  • The extended holiday may add to online sales in the domestic Chinese economy. Public amusements (theme parks, cinemas etc.) and travel will suffer. The domestic economic effect of the virus depends less on the virus and more on how people respond – which is why the role of social media in spreading rumors is important.
  • The trial of US President Donald Trump continues. Markets continue not to care much. US Commerce Secretary Wilbur Ross rushed to offer a distraction, threatening more trade conflict with Europe (the interlude of peace with France over digital taxes lasted less than a week). Carbon taxes are this week's target – though they would probably hurt China more than the US.
  • Italian regional elections offered support for the government and reduce the chance of an early general election. The German ifo sentiment opinion poll is due.

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