Academy Industry Analysis Article

China Manufacturing Resumes After Record Low, Bitcoin Reacts to Fed Cuts: Market Watch Weekly

2020.03.09

Investors globally are becoming increasingly concerned about the effects of the coronavirus (or COVID-19) on the world economy. Last week saw more than 100,000 confirmed cases of the virus worldwide. The vast majority of the confirmed cases — 80,699 — are in Mainland China, where the virus originated.

Traditional markets see volatility 

In response to the growing chaos across governments in connection with the virus, financial asset prices have been volatile this past week. In energy markets, the price of WTI crude oil tumbled more than 10 percent on Friday, March 6, to $ 41.28. The price is the lowest close since Nov. 28, 2014. 

The price of gold rose on Friday, March 6, approaching its biggest weekly gain since January 2009. United States Treasury yields continued to fall , with 10-year yields at record lows. 

The Shanghai Composite Index has shown strong resilience, diverging from U.S. stock markets and rising 5.35 percent on the week. The S&P 500 index rose 0.61 percent  over the last five trading days, and is still in a correction zone, down more than 10 percent from its recent high on Feb. 19.

Before the plunge in U.S. stocks at the end of February, some of the more sensitive, risky asset classes had already reacted and priced in the economic downturn. Crude oil, for example, fell from $63 a barrel in early January and is now down almost 35 percent since then.

The Fed makes emergency rate cut

In an effort to mitigate the risks of the coronavirus’ effect on the U.S. economy, the U.S. Federal Reserve announced a 0.5 percentage cut in its benchmark interest rate to a range of 1 to 1.25 percent.

The move, which occurred unexpectedly on Tuesday, March 3, before the Fed’s next scheduled meeting, is the first emergency rate cut the central bank has made since the 2008 financial crisis.

The U.S. stock market closed low on Tuesday after the announcement. Stocks then rose mid-week before falling towards the end of the week, as market sentiment faltered.

Bitcoin price loses recent gains

Bitcoin (BTC) has followed a similar path to U.S. stocks over the past week — first rising slightly, then falling. Earlier this week, BTC peaked just over $9,000 per coin, regaining some of the value it lost in March, after hitting a multi-month high over $10,000 in mid-February. But the price of the leading cryptocurrency plunged 9 percent over the weekend, erasing March’s gains and continuing to fall Monday morning, March 9. At press time,  Bitcoin is trading just below $8,000.

OKEX Bitcoin Index Price March 2, 2020 to March 9, 2020. Source: Okex.com

China manufacturing saw sharp drop, stocks resilient

Focusing on the Chinese market, the Shanghai Composite Index finished a solid session this week, rising for the first four trading days and falling back on Friday. But several manufacturing indicators released this week show the impact of business stoppages in China.

The China Caixin Manufacturing PMI index — which aims to provide a comprehensive snapshot of factory activity and indicate the overall performance of the local economy — fell to 40.3 last month (as of March 2), the lowest value on record. A PMI lower than 50 indicates contraction of the manufacturing economy, whereas over 50 indicates expansion. 

Additionally, the JP Morgan global manufacturing index PMI fell to 47.2 in February, the lowest since May 2009. 

The China Caixin Manufacturing PMI index. Source: Investing.com

Bitcoin mining moves past coronavirus delays

As the epidemic is gradually brought under control in China, we expect that all sectors will return to normal and manufacturing will resume regular levels, a sentiment the Chinese government is encouraging as of last week. 

Already, Bitcoin mining machine manufacturers have reportedly resumed production. This move will presumably allow new generation mining machines to be delivered more quickly, meaning network computing power and mining difficulty levels will be pushed up again. 

As the Bitcoin Halving approaches in May, miners are moving older, less powerful 16nm machines from China to countries where electricity is cheaper, such as the U.S., Canada and Central Asia.

Compared with China’s average electricity price of more than 0.4 yuan ($0.06), Kazakhstan’s electricity price of less than 0.2 yuan ($0.03) could prove very attractive to miners.

A mining pool owner revealed that the 16nm machine operating where the price of electricity is 0.4 yuan ($0.06) per kilowatt hour can generate a gross profit of 3.17 yuan ($0.46) daily. If the electricity price is reduced to 0.2 yuan per kilowatt hour, the daily gross profits of the mining machine would be 12 yuan ($1.73), increasing gross profits by 288 percent.

Still, it seems many old mining machines will have to go straight to the junkyard after the Halving.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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