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Coronavirus jitters push global markets down

Coronavirus jitters push global markets down

Business Desk A sharp rise in the number of coronavirus deaths and infections unnerved world markets on Thursday, as traders halted the rally in stocks and retreated to the safety of government bonds and gold. China’s Hubei province, where the virus is believed to have originated, reported 242 new deaths, double the previous day’s toll and the fastest rise since the pathogen was identified in December. It also confirmed 14,840 new cases, though it was amplified significantly by a switch to using quicker computerized tomography (CT) scans - which reveal lung infections - to confirm virus cases. Excluding cases confirmed using the new methods, the number of new cases rose by only 1,508, the official data showed, though for markets the net result was more uncertainty about how long problems are likely to persist. Europe quickly followed Asia into red with London FTSE, Frankfurt’s DAX and Paris’ CAC 40 down 0.3 per cent to 0.9 per cent, and the euro slumped near a three-year low against the dollar after a torrid couple of weeks. AXA Investment Management’s chief economist Gilles Moec said the impact of virus could be part of a “perfect storm” for Europe that hurts the economy for months and then gets compounded by a heated trade battle with the United States. “We started with the premise that this virus would be worse that SARS and that has become consensus,” Moec said. “So attention turns to who is hit the hardest and Europe is among the usual suspects and Germany in particular give China is its biggest export market. So the reaction of the exchange rate is probably rational,” he added. E-mini S&P 500 futures ESc1 were also down 0.5 per cent, pointing to a fade in Wall Street’s strong rally. With investors seeking safety, 10-year US Treasuries fell below 1.6 per cent, European yields fell around 3 basis points, the yen strengthened past 110 per dollar and a rally in oil prices halted. MSCI’s broadest index of Asia-Pacific shares outside Japan had snapped two days of 1 per cent gains to end 0.1 per cent lower as most markets across the region posted modest declines. “There is no panic on this,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, since the dramatic rise seems so far to be contained to Hubei. The new methodology effectively lowers the bar for classifying new infections, contributing to the spike in cases. Chinese officials said the method is only being used in Hubei, though it was expected to be gradually extended to other regions. Markets had taken comfort from the World Health Organization’s (WHO) emergency program head describing the apparent slowdown in the epidemic’s spread as “very reassuring”. Yet WHO chief Tedros Adhanom Ghebreyesus had also warned that it should be viewed with extreme caution. “This outbreak could still go in any direction,” he said. More than 1,300 people have died from the epidemic in China and the total number of cases in Hubei province now stands at 48,206. Across mainland China, the total number was almost 60,000. Even before the rise in cases, economists were turning more bearish on the likely hit to China’s growth as factories idle and supply chains are upended. Citi on Wednesday again downgraded its 2020 GDP forecast for China to 5.3 per cent. The bank had forecast it to be 5.8 per cent in its January outlook, before cutting it to 5.5 per cent two weeks ago. Morgan Stanley believes a gradual, rather than sharp recovery is the most likely scenario. That all bodes ill for regional economies and has weighed on Asian currencies and commodities. The Australian dollar, a liquid proxy for China’s economic health because of Australia’s export exposure, retraced its recent rally and traded 0.3 per cent softer at $0.6716. Asian markets fell on Thursday after a dramatic spike in the number of coronavirus deaths and cases in mainland China, with traders concerned about the economic impact of the epidemic. Chinese authorities have changed the way they count infections from the virus — officially named COVID-19 — and the latest reports propelled the nationwide death toll to 1,355 and the infection count to nearly 60,000. Tokyo’s benchmark Nikkei 225 index closed 0.1 percent down, Hong Kong lost 0.3 percent, and Shanghai ended the day 0.7 percent lower. Seoul dropped 0.2 percent, and Singapore lost 0.3 percent. But Sydney and Taipei were higher. The new virus numbers dampened the positive cue from Wall Street overnight, where the three main indexes all set fresh records. The jump in China coronavirus numbers “initially hit like a ton of bricks given this is one of the market’s biggest fears”, Stephen Innes, chief market strategist at AxiCorp, wrote. But he added that despite the “gnarly” headlines, the rise could be the result of a testing backlog being cleared over the weekend in Hubei province, where the virus emerged late last year. In early European trade, London was down 1.0 percent, while Paris and Frankfurt both lost 0.4 percent. China has been praised by the World Health Organization (WHO) for its transparent handling of the outbreak. There is, however, still scepticism among the global public, with suggestions that Beijing may be concealing the scale of the problem the way it did during the 2002-2003 SARS epidemic. “Just when markets were getting comfortable with the idea that the COVID-19 infection increase was trending lower, the sudden jump in the number of new cases in Hubei has jolted them out of this sense of complacency,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, told Bloomberg News. COVID-19 has threatened to harm the Chinese economy, the world’s second-largest, with ANZ bank warning that China’s first-quarter GDP growth would slow to 3.2-4.0 percent, down from a previous projection of 5.0 percent. In a Wednesday meeting, China’s top leadership called for efforts to minimise the impact of the outbreak and pledged measures to help firms deal with the economic fallout. A day later, the ruling Communist Party fired two top-ranking officials in Hubei. China is the world’s biggest importer and consumer of oil, and crude prices have been particularly sensitive to the epidemic. The fresh jitters hit both main contracts on Thursday, which dropped after rising mid-week. Brent Crude was down 0.8 percent and West Texas Intermediate was 0.5 percent lower. Earlier on Wednesday, a drop in the number of new coronavirus cases and the Federal Reserve chairman’s optimistic view of the economy lifted world stocks for a third day and sparked a 2 per cent rally in oil prices, on hopes the epidemic’s effects would be contained. China reported its lowest number of new coronavirus cases since late January, lending weight to a prediction from its senior medical adviser that the outbreak might be over by April. Those reports encouraged investors to get back into equities at the expense of bonds, gold and the Japanese yen — safe-haven assets that benefited as the virus death toll mounted. “If you look at the share indexes and other risky assets it seems like people now believe all will be okay with the coronavirus situation,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. MSCI’s global equity index rose 0.2 per cent to stand just off Tuesday’s record highs .MIWD00000PUS. A pan-European equity index rose to a record as automobile stocks — which depend on exports to China — jumped 1.2 per cent. Futures indicated Wall Street would extend gains from Tuesday, when the S&P 500 and Nasdaq posted record closing highs ESC1. Riskier, higher-yielding bonds also rallied. Yields on 10-year Greek governments bonds slipped under 1 per cent for the first time ever. Earlier, mainland Chinese shares rose almost 1 per cent .CSI300 and the offshore-traded yuan reached two-week highs. Currencies such as the Thai baht and Korean won, reliant on Chinese tourism and trade, gained 0.3 per cent to 0.5 per cent. But the yen slipped 0.3 per cent to a three-week low against the dollar. Brent crude futures rose from 13-month lows LCOc1, though they are still down almost 20 per cent from their peak in early January. Many analysts caution against complacency over the economic fallout. Some Chinese firms have reported job cuts caused by damage to manufacturing supply chains. Savary at Prime Partners agreed, noting the dollar is near four-month highs, 10-year US yields are some 30 basis points below early-January levels and demand for Swiss francs is high. “Investors are not completely convinced the coronavirus is under control ... they are trying to hedge their equity bets by taking exposure to safe-havens at the same time,” he said. Yields on US Treasuries and German Bunds rose around 2 basis points. Ten-year US yields are now 12 bps off the four-and-a-half-month lows reached in late January. Yields rose on Tuesday after US Federal Reserve Chair Jerome Powell said the US economy was “resilient”. Powell also said he was monitoring the coronavirus, because it could lead to disruptions that affect the global economy. The dollar held near a four-month high on Wednesday on growing hopes the spread of the coronavirus had slowed, encouraging hedge funds to step up purchases of the relatively higher-yielding greenback. A Nomura analysis showed trend-following investors, or CTAs’ as they are popularly known, have stepped up dollar buying at a rapid clip in recent days, buying the greenback against a broad range of currencies. Across mainland China 2,015 new cases of coronavirus were confirmed as of Tuesday, the lowest daily rise since Jan. 30. China’s senior medical adviser also said the outbreak might be over by April. The slowdown in the number of new cases encouraged investors to resume seeking yields. The dollar has benefited from that approach, thanks to its relatively high interest rates. Spreads between US and German 10-year bond yields, for example, are holding at more than two-year highs above 200 basis points. Though market watchers remain sceptical about the dollar’s outlook in the near term before a US election in November and the central bank’s broadly accommodative policy stance, the environment remains supportive. “The US economic data is still superior to other economies’ and the growth gap with the rest of the world remains substantial,” said Ugo Lancioni, portfolio manager of the Neuberger Berman Macro Opportunities FX Fund. Citigroup’s economic surprise index for Europe has slumped to a four-month low .CESIEUR, while a similar gauge for the United States .CESIUSD jumped to a five-month high after dismal German industrial data and strong US jobs figures last week. “The steady improvement in risk appetite is helping markets, and expectations that central banks will not rush into tightening policy anytime soon is also boosting sentiment,” said Manuel Oliveri, an FX strategist at Credit Agricole in London. Against a basket of major currencies, the dollar edged 0.1 per cent higher to 98.77, just below a four-month high of 98.95 hit in the previous session. US markets also got a boost from signs President Donald Trump might be re-elected in November, since centrist candidates for the Democratic nomination appear to be struggling. “Trump had a great start into the US election season. After the early end of the impeachment trial in the Senate and the Iowa caucus chaos for the Democrats, betting markets suggest that Trump has a 58 per cent probability of winning re-election on 3 November,” Berenberg said. The day’s big currency mover was the New Zealand dollar, which rose 0.8 per cent for its best daily gain since December, after the central bank dropped a reference to further rate cuts, suggesting its easing cycle might be over. Gold prices inched down to a near one-week low on Wednesday as investors’ risk appetite picked up on reports of a decline in new coronavirus cases, although concerns over its impact on the global economy persisted. Spot gold was down 0.1 per cent to $1,566.31 per ounce at 1059 GMT, having touched its lowest since Feb. 6 at $1,561.16 earlier. US gold futures were flat at $1,569.60. Peter Fertig, an analyst at Quantitative Commodity Research, said a recovery in riskier assets like stock markets, and a stronger US dollar were reducing gold’s safe haven appeal. “The rate of (coronavirus infection) rises is getting slower ... it’s showing that an end of this epidemic is in sight,” he added. Gold, which is often used as insurance against economic risks, tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion. “Even though gold is range bound ... $1,600 is on the cards, but it may take a bit longer,” said Afshin Nabavi, senior vice president at precious metals trader MKS SA, pointing to unresolved geopolitical tensions such as in the Middle East and US-Chinese trade frictions.

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