The outbreak of the Wuhan flu has once again convinced the Chinese government that it is now totally inappropriate time to wage war or retaliate. The government decided to spur economic activity by easing import restrictions - on Tuesday it was officially announced that tariffs on 696 goods importing from the United States will be temporarily canceled. However, can this interrupt the onset of massive market panic?

The goods which import may be exempted from tariffs include agricultural products (pork, soybeans, frozen beef, etc.), LNG, and crude oil. During the escalation of the trade conflict, China slapped retaliatory tariffs on those goods but now it is forced to retreat. Markets are pretty cautious at pricing in this progress since those tariffs not only do not curb the import activity now but are even aimed to bolster it up.

But the latest information regarding countermeasures taken in Wuhan still raises doubts whether the official numbers are true. And not even because China is trying to rig the data, but because there are reasons to believe that this can happen unintentionally. If we take into account numerous reports of casualties even among medical staff working in protective equipment, we can conclude that there is a good chance of becoming infected in hospitals. At some stage of the outbreak, the people of Wuhan could have a negative perception not only about the effectiveness of treatment because of the chaos prevailing in hospitals, but also about the safety of visiting hospitals to test if they show only minor symptoms. People may try to minimize visits to hospitals, hoping for the usual flu or a cold, as long as their physical condition allows. This is probably why, desperate to overcome the epidemic with “soft” quarantine, the authorities in Wuhan have tightened it further. The citizens are now forbidden to leave their homes, even to buy food:

The locking down in #Wuhan is getting tighter. No coming out at all now. #武汉 小区封锁加剧。从七天可出一次门变为任何时候不得出门。#COVID2019#Coronavirus#CoronavirusOutbreak#coronaviruschina#武汉肺炎#新冠肺炎#新冠病毒#少年译制pic.twitter.com/kpbNgZAAjj

— 曾錚 Jennifer Zeng (@jenniferatntd) February 17, 2020

It turns out that increasing the spread of the epidemic can lead to a paradoxical improvement in the official data. The market interpretation of this assumption is obvious - a longer quarantine than previously assumed, and therefore a higher risk of an economic crisis, which will spread to other economies like a fire.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.