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How the Blizzard in the US Affected Markets
Winter storm Jonas has wreaked a lot of havoc, not just in the east coast of the United States, but in the financial markets as well. Here are some of the effects of one of the worst blizzards in history on the US economy and market price action.
Business Activity
It’s no surprise that business activity has been in a standstill for days in a number of US cities in New York, Virginia, and DC. Roads had to be closed while several modes of transportation were inaccessible, leading some businesses to pause operations and employees to take time off work.
Macroeconomic analysts estimated that the storm probably cost around $350-850 million in damages to infrastructure, business losses, and lack of hourly wages. In New York alone, the city controller estimated that the cost of cleaning up piles of snowfall amounts to roughly $1.8 million per inch.
On a less downbeat note, however, not all businesses suffered losses from this phenomenon as some actually raked in quick profits on panic-buying and sales of winter apparel. Several grocery stores saw a spike in purchases leading up to the storm, as folks hoarded supplies such as bread, eggs, and hardware in preparation. Meanwhile, department store chains such as Target enjoyed an influx of buyers of jackets and gloves.
In fact, Columbia Sportswear saw such a strong demand enough to lift its share prices in the past week. This family-run company houses various brands such as Montrail, Mountain Hardware, Sorel boots aside from its main Columbia brand, making it likely to report strong revenues and earnings data next month.
Commodities
Crude oil, which had been tumbling for the most part of the year so far, enjoyed a bit of a rebound thanks partly to the winter storm. The blizzard disrupted operations in several drilling companies, keeping a lid on supply levels and preventing inventories from building up. This put a bit of upward pressure on prices, as oil producers in other parts of the world also considered the idea of reducing their production.
In addition, diesel futures also saw a spike, as this commodity reflected the trading of heating oil. Demand picked up as more consumption of heating fuels rose while supply ticked down, as snowfall and cold winds dampened the operations of refineries and power plants in the Northeast area. Natural gas futures even entered bull market territory during the peak of the blizzard, as bullish speculators bet that the cold weather would continue to support demand for heating supplies.
Exports
Although demand for commodities has managed to stay afloat, export activity was hampered by the storm, owing to the closure of several ports in the Atlantic area. The storm has caused massive transport delays, not just in shipping, but also in air freight.
Several flights have been cancelled throughout the worst of the blizzard, weighing on import and export activity. In New England, over 3,000 flights were cancelled, resulting to several delays in inbound deliveries and some degree of port congestion. New York has been more optimistic, with officials assuring that the storm has paralyzed the city for only a couple of days when it comes to trade.
In terms of market sectors, this slowdown in trade is weighing on the beef industry, as meat movement across the country has slowed. The east coast is known for its high demand for beef, and the inability to ship these products over to the area in a timely manner has weighed on wholesale prices. In addition, the precipitation and low temperatures have made it more challenging for meat suppliers to bring beef and other goods through trucks into the densely populated areas in the Northeast and Atlantic Coast.
Equities
So far, it seems that the blizzard has had a minimal effect on stock markets, limiting the movement to the companies directly affected by the winter storm such as groceries, department store chains, airlines, energy companies, and winter gear sellers. However, the impact of the storm is expected to be reflected in the next earnings reports of these companies, possibly leading to larger market moves later on.
Besides, the financial markets appear to be dealing with a storm of their own, facing strong headwinds from China and the slump in oil prices. US equities recorded one of their worst weekly opens earlier in the year but have managed to record consecutive gains for almost a week already, indicating that investors are feeling less apprehensive.
The latest FOMC statement hasn’t included any major references to the weather disturbance as well, leading investors to think that it probably didn’t shave too much off the US growth figures for the quarter. Keep in mind, however, that the winter storm around the same time last year resulted to a 0.4% dent on the country’s quarterly GDP.
This time around, economists are projecting that the January blizzard probably froze a part of the US growth figures for the third year in a row. Back in the first quarter of 2014, the economy contracted by 0.9% while Q1 2015 recorded a meager 0.6% economic expansion.
However, others are more optimistic in saying that the timing and location of the storm this year meant minimal repercussions. The regions affected by the storm chalk up around $16 billion in daily economic output but the fact that the blizzard occurred during the weekend suggests that the damage was focused on the businesses and offices that are usually open then.
In any case, financial markets probably haven’t seen the worst of the storm yet, as the full impact on the numbers won’t be reflected until much later in the year. Any indication that the US central bank or government agencies are getting concerned about these weather disturbances could exacerbate its impact on the stock market, as well as the US dollar’s price action. For the time being, investors are zooming in to the developments in the global economy and monetary policy action by central banks.
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