Stocks fall as fears of coronavirus hit global markets

Financial markets around the globe slumped on Monday as news of the Italian coronavirus outbreak wiped £62bn off the value of the FTSE 100 and shares on Wall Street tumbled.

Shares came under heavy selling pressure in key markets as analysts warned that the threat of tougher quarantine measures outside China to prevent the spread of the disease would hit company profits by hitting supply chains and consumer demand. Investors rushed to buy “safe haven” investments such as gold to protect against steep losses on the stock markets, sending the price of the precious metal to a seven-year high of $1,683 (£1,303) an ounce.

US stock markets had their worst day in two years. The Dow Jones Industrial Average fell by over 1,000 points, or about 3%, in New York as investors in the world’s largest economy priced in the possibility of a deeper global economic shock.

In a note to investors Goldman Sachs cut its US growth forecast from 1.4% to just 1.2% for the first quarter. “An increasing amount of companies [are] suggesting potential production cuts should supply chain disruptions persist into Q2 or later,” wrote Jan Hatzius, Goldman’s chief US economist

The FTSE 100 index in London lost 247 points to 7,156.83, a 3.3% drop and its worst worst percentage fall since January 2016. Among the worst-hit stocks on the list of the UK’s biggest public companies was the budget airline easyJet, which lost £1bn in value as the stock fell by more than 16%. The tour operator Tui fell by almost 10%, and the British Airways owner, IAG, dropped by 9%, on the back of expectations that the outbreak would lead to fewer people jetting away on holiday or for business.

Shares in Carnival, the cruise ship operator that has faced an outbreak of the virus on its Diamond Princess vessel, shed 6.8%.

Seema Shah, chief strategist at investment manager Principal Global Investors, said: “The spread of the virus outside China would mean even more pressure on European supply chains and consumer demand and may result in a wave of profit warnings if the spread accelerates.”

The dramatic plunge in the financial markets comes as Italy emerged at the centre of the coronavirus crisis in Europe, reporting its sixth death on Monday. The number of cases in the country rose to more than 200, the highest number outside Asia. The eurozone’s third largest economy is already shrinking and the rapid spread of the virus has sparked fears of a recession at a delicate moment. Italian authorities have responded by locking down 12 cities in the north of the country and the Venice carnival has been cut short by two days.

The Italian stock market tumbled by almost 1,500 points to 23,288.35, a 6% slide, putting it on track for its worst day since 2016. Elsewhere in Europe, Germany’s Dax index fell 3.5% while France’s Cac 40 lost 3.7%.

In Asia, Hong Kong’s Hang Seng index fell 1.8%, while South Korea’s Kospi slumped 3.9%. The number of coronavirus cases rose to 763. Japan’s stock market was closed for a scheduled holiday.

Chris Beauchamp, chief market analyst at online trading firm IG, said: “It has been a while since the term ‘sea of red’ was last deployed to describe the market action, but it seems appropriate this morning.

“The idea that the coronavirus has been fully contained has been firmly banished, and investors are now on notice to expect more cases and, sadly, more deaths. This means the economic forecasts of the impact, such as they are, will need to be revised, with a greater impact now to be expected.”

Stock markets had fallen sharply at the end of January as news of the coronavirus outbreak first emerged, prompting fears over the global economy because of slowing growth on the back of the US-China trade war. Steps by the People’s Bank of China to inject billions into the world’s second largest economy then led to a rally. However, fresh concerns over the rising impact from the virus have returned to dent optimism.

Oil prices have fallen as global demand is likely to decline because of the virus outbreak and China is the world’s biggest importer of oil. Brent crude tumbled by $2.66 a barrel to $55.69, a 4.6% fall.

Warren Patterson, head of commodity strategy at ING, said: “We believe the virus’s effect on oil demand will shave some 400,000 barrels a day from global consumption growth, taking us to the lowest level in nearly a decade.”

As the virus spreads, the Beijing motor show in late April has been postponed. The owner of Primark, Associated British Foods, warned on Monday that there could be shortages of some clothing lines later this year if factory shutdowns in China are prolonged. ABF sources more than 40% of Primark’s products from China.

Related posts

Leave a Comment