Wall St falls sharply as coronavirus fears surge

Iseq drops 4.2% as Italian lockdown jangle investors’ nerves and global markets take a hit

Military officers wearing face masks stand outside Milan’s Duomo cathedral. Photograph: Flavio Lo Scalzo/Reuters

Military officers wearing face masks stand outside Milan’s Duomo cathedral. Photograph: Flavio Lo Scalzo/Reuters

 

Wall Street fell sharply in opening trading, extending a global wave of selling as the coronavirus that originated in China spread far beyond the country’s borders. The Iseq was down 4.2 per cent in afternoon trading

The S&P 500 dropped 2.7 per cent shortly after the opening bell and the tech-heavy Nasdaq benchmark lost 3.2 per cent, the worst showing since August for each benchmark. The Dow Jones Industrial Average was 2.8 per cent lower, shedding about 850 points after the opening bell.

The sell-off was led by microprocessor groups like Advanced Micro Devices, where supply chain concerns continue to weight, and travel companies like American Airlines and Norwegian Cruise Line.

Equities

The global drop in equities comes after Italy imposed a quarantine across at least 10 towns in an effort to contain the biggest outbreak of the virus outside Asia, with 219 confirmed infections and five deaths.

South Korean authorities reported 231 new cases on Monday, bringing the total number to 833 with seven related fatalities. The government added it had put 7,000 troops under quarantine after 11 had tested positive for the virus.

Iran said there had been 12 deaths and 61 confirmed coronavirus cases in the country, a sharp rise from eight fatalities and 43 infected patients it had reported a day earlier. Turkey closed its borders with Iran, and Iraq, Afghanistan, Armenia and Pakistan have imposed restrictions on border crossings and trade.

Italian stocks led the global declines, with the country’s FTSE Mib index of shares dropping 5.6 per cent, the largest decline since 2016. The continent-wide Stoxx 600 tumbled 4.2 per cent, while the UK’s FTSE 100 dropped by 3.7 per cent, in its largest slide since 2015. Shares in European airline easyJet fell 16 per cent, while Ryanair slid 13 per cent.

The drops echoed falls in several major Asian markets. Seoul’s Kospi sustained a particularly severe blow, diving 3.9 per cent, its worst day since late 2018, after South Korea raised its infectious disease alert to its highest level for the first time in a decade. S&P 500 futures, which track Wall Street’s benchmark stock barometer, dropped 1 per cent with several hours to go before the opening bell in New York.

“Markets [are] likely to show extreme caution in the face of [the] global spread of the coronavirus,” said Robert Carnell, chief Asia-Pacific economist at ING. “This is no longer solely an Asia issue.”

Confirmed cases of the virus in South Korea rose to 763 with seven related fatalities. Iran, meanwhile, has reported eight coronavirus deaths but only 43 cases, implying that the spread of the illness there could be far greater than captured by official screening.

Assets that are considered to be shelters during times of stress rallied. The yield on 10-year US government debt fell 0.08 percentage points to 1.39 per cent, the lowest level since July 2016. Yields fall when prices rise. Similarly, gold rallied 2.3 per cent to $1,680 (€1,555) a troy ounce, increasing the yellow metal’s price to the highest level in seven years.

Commodities

Oil, one of the commodities that has been hit by concerns the coronavirus outbreak will stunt global economic growth, declined on Monday. Brent crude, the global marker, fell 3.6 per cent to $56.36 a barrel.

“The coronavirus outbreak is starting to rattle?asset markets and should keep weighing on commodities’ demand,” said Aakash Doshi, head of commodities research in North America at Citigroup. “If virus risks keep spreading outside of China, causing broader downturns in equities and [corporate bond] markets, commodities’ prices should face further short-term headwinds.”

One possible source of support for markets comes from a familiar source: central banks. Over the weekend, Haruhiko Kuroda, Bank of Japan governor, said he was monitoring the impact of the virus and was “well prepared” to act to bolster the economy. US Treasury secretary Steven Mnuchin said central banks would look into possible responses if needed. Analysts at Rabobank said the European Central Bank would “have” to present a monetary policy response.

On Sunday, Chinese authorities reported that only 11 new cases of the virus had been discovered outside Hubei, where it originated, suggesting the spread of the virus had slowed in the rest of the country.

However, President Xi Jinping told thousands of government and party officials that the epidemic was the “most difficult” public health challenge the party had faced, and that it had also exposed “obvious shortcomings” in governance.

Operations

China’s extended lunar new year holiday officially ended on February 10th, but consumption of commodities such as coal for power generation was far below normal levels, analysts have noted. Steel inventories are at five-year highs because of a lack of demand, according to Mysteel, a consultancy.

At a State Council briefing on Monday, senior economic and financial officials estimated that more than 70 per cent of large manufacturers had reopened in most industrial areas, but admitted that smaller and medium-sized companies were struggling, with less than 30 per cent resuming operations.

“Consumption hasn’t disappeared; it has just been postponed,” said Cong Liang at the National Development and Reform Commission. The officials did not promise any large stimulus measures beyond Rmb300 billion ($42.6 billion) in previously announced central bank loans for struggling companies.– Copyright The Financial Times Limited 2020