Coronavirus risks send chill through global stock markets

Global stock markets took a hit on Tuesday as mounting concerns about a new strain of coronavirus in China sent a ripple of risk aversion through markets.

Authorities in China confirmed that the new virus could spread through human contact, reporting 15 medical staff had been infected and a fourth person had died.

In New York , the Dow Jones Industrial Average fell 79.05 points at the open, or 0.27 percent; the S&P 500 opened lower by 0.26 percent and the Nasdaq dropped 0.30 percent at the start of trading. 

Safe-haven assets such as bonds and the yen gained as investors were reminded of the economic damage done by the SARS virus in 2002-2003, particularly given the threat of contagion as hundreds of millions travel for the Lunar New Year holidays.

“I’m not an expert in the pandemics, but you can look at previous examples like the SARS outbreak, which also originated from Asia,” said Cristian Maggio, head of emerging markets strategy at TD Securities in London.

Noting that China had initially downplayed the full extent of the SARS outbreak, he said, “I think the market might be fearing something similar.”

The mood swing saw MSCI’s All-Country World Index slip as much as 0.4 percent, at one point wiping out gains made on Monday. It traded down 0.27 percent by afternoon in London. Asian markets were hit particularly hard.

Hong Kong, which suffered badly during the SARS outbreak, saw its index fall 2.8 percent. Japan’s Nikkei lost 0.9 percent and Shanghai blue chips 1.7 percent, with airlines under pressure.

The chill in Asia carried over to European markets. Shares of luxury goods makers – which have large exposure to China – were among those declining the most. The pan-European STOXX 600 index fell as much as 1 percent at the open before recovering to trade 0.4 percent lower.

Germany’s 10-year government bond yield touched a one-week low, then bounced back after a closely watched survey showed investor sentiment on Germany’s economy came in better than expected for December.

Investors had already been guarded after the International Monetary Fund lowered its global growth forecasts, mostly because of a surprisingly sharp slowdown in India and other emerging markets.

There had been some relief as US President Donald Trump and French President Emmanuel Macron seemed to have struck a truce over a proposed digital tax. They agreed to hold off on a potential tariffs war until the end of the year, a French diplomatic source said.

Trump, marking his second meeting of global political and business leaders at the World Economic Forum, said that trade deals struck this month with China and Mexico represented a model for the 21st century.

He also took aim at the US Federal Reserve’s policy decisions, saying that the central bank “raised rates too quickly and has lowered them too slowly”.

The Bank of Japan cited lessened trade risks when it raised forecasts for economic growth after holding a policy meeting on Tuesday.

As widely expected, the BOJ maintained its short-term interest rate target at -0.1 percent and a pledge to guide 10-year government bond yields around 0 percent, by a 7-2 vote.

Japan’s yen gained on the safe-haven move and the dollar dipped to 110.04 from an early 110.17. It also gained on the euro.

Against a basket of currencies, the dollar lost 0.1 percent to trade at 97.497, just off a four-week high of 97.729.

The Australian dollar also suffered from the virus worries since it attracts large numbers of Chinese tourists, who tend to be big spenders over the Lunar New Year holidays. Australia said it would step up screening of some flights from Wuhan.

The outbreak was particularly badly timed as the tourism industry has been mauled already by bushfires sweeping the country.

Spot gold hit a two-week high of $1,568.35 per ounce, but eased, last trading above $1,550 an ounce.

Oil prices slid over 1 percent, having earlier gained on the risk of supply disruption in Libya.

Brent crude futures fell 1.5 percent to $64.22 a barrel. US crude fell 1.28 percent to $57.79 a barrel.