The scope of measures to counter the new deadly virus in China suggests now that economic growth will not likely live up to forecast in the first quarter. Lockdown enforced by the government has already covered 20 million people, 70 thousand movie theaters across the country have been closed while big cities in China including Beijing have cancelled festivities attributed to the Lunar Year celebration. Consumer spending which sees a seasonal surge in January and February, is expected to be hit particularly hard. The virus outbreak in the world's second largest economy, unfortunately, does not allow one to expect an isolated economic effect and may also affect the economies of China's trading partners.

Therefore, news shedding light on the intensity of the spread of the virus, lethality, or success in treatment can stir market response, especially in safe heaven assets. Here is the Gold chart where I linked recent price jumps with news from China:

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While the buzz has not subsided and there are still a lot of trading opportunities based on potential risk-on/risk-off movements in safe heavens, I would like to give some information about the new virus, which should help to get an idea of ​​how the perception of the threat by the Chinese government and the rest of the world can change depending on the incoming data.

Serious concern of the authorities and the accompanying panic were caused by confirmation that the virus is transmitted from person to person. Since this is a new virus, it spreads easily. This problem is aggravated by the fact that the longer the outbreak, the greater the number of potential mutations. This is the essence of the threat. The rapidly growing number of case reports makes it easy to replace the cause of panic from virulence to lethality. However, it is still premature to draw conclusions about how deadly the virus is, since little time has passed from the onset of the outbreak and age composition of the patients makes the sample unrepresentative for calculating any statistical indicators (like mortality) and comparing with the same of SARS (“atypical pneumonia”) or cold virus.

However, are indirect facts allowing us to draw conclusions about capacity of the virus to cause deaths:

- The incubation period of the new virus is 14 days. It is not clear how much the virus can be outside of a body without its structure destroyed (to remain “alive”);

- According to doctors from Wuhan, initial clinical experience shows that the symptoms of the patients are fairly mild, often mimicking cold. The most common symptom is a fever;

- Complications are observed in elderly patients with concomitant diseases such as diabetes, cardiovascular disease, high blood pressure;

- The duration of treatment for the first wave of patients was 3 weeks. The condition of most patients improves after the first week of treatment;

- The virus has a low tolerance to high temperatures; the virus dies within 30 minutes of exposure to 56C heat.

However, the statement by well-known Chinese virologist Gang Yi, SARS researcher, should cause worries: “Conservatively, the spread of the new virus is 10 times worse than the SARS outbreak.”

WHO refused to declare a global emergency, since the case of transmission of the virus from person to person is recorded only in China. This caused some relief in the markets, but the situation could change quickly if the number of reported cases outside of China began to grow rapidly. So far, almost all cases of diseases outside China are isolated. It is also worthwhile to carefully monitor unconfirmed reports of infection, and then rebuttals/ confirmation of those reports.

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