Global markets are a freefalling, sea of red mess, as algos finally realized that last week’s optimism that China’s coronavirus epidemic “is contained” was actually dead wrong, and the result is Dow down over 400 points and S&P futures plunging below 3,250…
… because with nearly 3,000 people infected around the globe and over 80 dead, one thing is certain: the epidemic is anything but contained.
And so, after denying reality for over a week, global stocks finally tumbled on Monday with S&P futures plunged the most since October 2, as investors grew increasingly anxious about the economic impact of China’s spreading virus outbreak, with demand spiking for safe-haven assets such as the Japanese yen and Treasury notes.
“Any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalization,” Stephen Innes, chief Asia market strategist at Axitrader, wrote in a note Monday. “I’m starting to think cash is the right place to be for the next few weeks” Innes added making a mockery of Ray Dalio’s cash forecast for the second time in three years.
As Saxobank notes, equities are finally beginning to contemplate the possibility that the virus 2019-nCoV in China will have significant economic impact as the lockdown is now affecting 56 million people. China has imposed travel bans, school closings in major cities and is extending the Lunar New Year. The market reaction already started Friday with the US equities declining as more news disseminated, but in today’s session Chinese related markets are hit hard.
“Investors will react quickly to any sign of negativity and this is no exception as China announces that the issue has become an emergency. This could keep oil prices fragile until the coronavirus shows signs of slowing down,” said Mihir Kapadia, chief executive at Sun Global Investments.
In Asian trading, the MSCI index of Asia-Pacific shares ex-Japan was off 0.4%, although trade in the region has already slowed for the Lunar New Year and other holidays, with financial markets in China, Hong Kong, Taiwan, South Korea, Singapore and Australia closed on Monday. Japan’s Nikkei average slid 2.0%, the biggest one-day fall in five months. Amid the Lunar New Year holiday, many markets in Asia were closed with China expected to be closed until at least Feb 3, however those who wanted to get out of China could do so thanks to the Singapore-tarded China proxy, the FTSE China A50 future, has plunged over 11% since the disease outbreak was reported.
The risk-off sentiment continued in European trading, where volumes and volatility surged, as Europe reacted to Asian equity weakness driven by weekend updates on the coronavirus spread. The Stoxx Europe 600 Index headed for its worst decline since October, with the mining group dropping by 4%. All Euro Stoxx 600 sectors are in the red with miners, travel and tech names posting the heaviest losses; a key measure of risk for the debt of Europe’s most fragile companies jumped to the highest in nearly two months. Adding to Europe’s pain, Germany’s IFO survey disappointed, confirming that the economic rebound in Germany is not a straight line as we have seen in previous rebounds since 2008. It all adds to uncertainty.
U.S. Treasury prices advanced, pushing down yields further, with the benchmark 10-year notes dropping to a 3-1/2-month trough of 1.627% in early Asian trade.
As yields plunged, so did oil and Brent crude futures fell to three- and five-month lows, respectively, with Brent plunging below $60 for the first time since October.