STOCKS BOUNCE BACK AFTER LOSSES EARLIER IN THE WEEK
▶ US equities recovered yesterday after the worst two-day stretch of sell-offs in recent years
Selling pressure eased on global markets yesterday after fears over the impact of the coronavirus on the global economy had pushed equities lower earlier in the week.
In the US, the Dow Jones opened 0.6 per cent higher while the S&P500 index was up 0.7 per cent in early trading. Both markets had notched up their worst two-day decline since February 2018 on Monday and Tuesday following an official health warning. The country’s Centres for Disease Control and Prevention said on Tuesday it was a matter of when, not if, the virus spreads across the country. The sell-off in equity markets also led investors to rush into bonds, pushing US treasury yields lower.
“The US 10-year yield eased to 1.36 per cent on mounting expectation of a Federal Reserve intervention to stop the panic in the equity space,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. Activity on the bonds market suggest the probability of a rate cut at the Federal Reserve’s monetary policy meeting next month advanced to 27.7 per cent, she added.
Gold prices eased after investors took profits following few days of rapid rise to about $1,700 per ounce, falling back to $1,629.84 at 6.36pm UAE time. The yellow metal has still gained about 7.5 per cent since the start of the year.
In Europe, markets had declined steeply in early trading with the Stoxx 600 index falling 2.6 per cent to a four-month low at one stage, before recouping most of its losses to trade about 0.4 per cent lower at 6.45pm UAE time.
In Italy, the main market index stabilised after a week of sell-offs as the number of cases in the country rose to more than 300, mainly in the northern regions of Lombardy and Veneto. The country put 100,000 people on lockdown, while France registered its first fatality from the virus. The index dropped by more than 9 per cent over the past week.
“Italian authorities’ attempt to strike a balance between restrictive measures to contain the spread of the virus and attempts to limit the negative impact on the economy will be challenging,” said Carlo Capuano, an analyst at DBRS Morningstar.
In Asia, the CSI 300 index tracking the largest stocks on the Shanghai and Shenzhen indexes closed 1.2 per cent lower and South Korea’s main market fell 1.3 per cent as the number of confirmed cases in the country topped 1,261, which is the highest of any country other than China.
Sell-offs in other Asian markets were more muted, with Japan’s Nikkei falling 0.8 per cent and Hong Kong’s Hang Seng index down 0.7 per cent.
“The sell-off in Asian markets continues, with risk appetite struggling to find a solid footing as the coronavirus spreads across the globe,” said Lukman Otunuga, a market analyst at exchange brokerage, FXTM.
Weibo, the Chinese social media giant, said its first quarter business for 2020 has been “significantly impacted” by the coronavirus outbreak. Although the company said it had “limited visibility” on the eventual impact, it is anticipating a 15 to 20 per cent year-on-year fall in revenue for the first three months of the year.
Economic activity in China “is resuming, albeit slowly”, Swiss private bank Lombard Odier said in a note. It said fiscal measures embarked upon by China, including lifting of regulations on the housing sector, could lead to an uplift equating to 1 to 1.5 per cent of GDP.
“Our key assumption remains that the impact [of coronavirus] will be significant but largely temporary, as economic activity recovers after containment measures are lifted.
“The consistent drop in new cases in China is in line with our expectations for eventual containment, but signs of international contagion are worrisome and must be closely monitored,” the bank said.
Global equity markets were already “ripe for a correction after an impressive rally”, Patrick Lang, head of global equity strategy at Julius Baer said.
He, too, says the impact of the virus is likely to be wide-ranging, but temporary.
“We consider the correction as an entry point to equity markets,” Mr Lang said. “With regard to the longer-term outlook, our view is that the current correction is healthy for equities.”