Stocks, oil prices skid as coronavirus fears drive investors to safe havens
TOKYO (Reuters) – Shares tumbled on Monday 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.
Japan’s Nikkei average slid two percent, the biggest one-day fall in five months, while a Tokyo-listed China proxy, ChinaAMC CSI 300 index, slid 2.2 percent. Amid the Lunar New Year holiday, many markets in Asia were closed.
US S&P 500 mini futures were last down one percent, having fallen 1.3 percent in early Asian trade.
European shares were expected to follow suit, with major European stock futures trading 1.2 to 1.4 per- cent lower.
“With most Asian markets closed, fast-money investors are buying risk-off hedges like Treasuries and selling the Nikkei,” said Masahiko Loo, portfolio manager at Alliance Bernstein.
“I think this would continue this week, until China markets resume trading next week and the coronavirus outbreak subsides.”
The ability of the coronavirus to spread is getting stronger and infections could continue to rise, China’s National Health Commission said on Sunday, with nearly 2,800 people globally infected and 81 in China killed by the disease.
China announced it will extend the week-long Lunar New Year holiday by three days to Feb. 2 and schools will return from their break later than usual. Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei province in the past 14 days.
Market participants kept a wary eye on developments around the virus, which the World Health Organization (WHO) last week deemed “an emergency in China,” but not, as yet, for the rest of the world.
MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.4 percent, 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.
All three major Wall Street indexes closed sharply lower on Friday, with the S&P 500 seeing its biggest one-day percentage drop in over three months.
The S&P 500 lost 0.9 percent, the Dow Jones Industrial Average
fell 0.6 percent and the Nasdaq Composite shed 0.9 percent after the Centers for Disease Control and Prevention confirmed a second case of the virus on US soil.
US Treasury prices advanced, pushing down yields further, with the benchmark 10-year notes dropping to a 3-1/2-month trough of 1.627 percent in early Asian trade.
In the currency market, the concerns about the virus supported the yen, often perceived as a safe haven because of Japan’s net creditor status.
The Japanese currency strengthened as much as 0.5 percent to 108.73 yen per dollar its 2-1/2week high.
The euro last stood at $1.1028 versus the dollar, having fallen to its eight-week low of $1.1019 on Friday.
The offshore yuan dropped more than 0.5 percent to 6.9776 against the dollar, its weakest level since Jan. 6.
The heightened fears of the economic impact of the coronavirus also pressured oil and other commodity prices, except safehaven gold.
US West Texas Intermediate (WTI) crude futures plummeted 3.8 percent to hit a 3-1/2-month low of $52.15 in early trade. International benchmark Brent shed more than three percent to its three month low of $58.68 per barrel.
“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.
Spot gold rose as much as one percent to $1,585.80 per ounce, the highest level since Jan. 8, as rising concerns over the spread of a virus outbreak in China and its potential economic impact prompted investors to buy the safe-haven metal.