January 30, 2020 / 9:17 AM / 6 months ago

Daily Briefing: Market angst grows over virus hit

LONDON (Reuters) - With the Federal Reserve’s first policy decision of the new year out of the way, investor angst over China’s coronavirus outbreak went up another notch on Thursday.

People wearing face masks carry their luggage as they walk outside Beijing Railway Station, January 30, 2020. REUTERS/Carlos Garcia Rawlins

As the recorded number of infections and fatalities continued to climb, the World Health Organization voiced "grave concern" about person-to-person spread in countries outside China.

Its Emergency Committee will reconvene on Thursday to decide whether the rapid spread of the virus from China now constitutes a global emergency. Major banks and investment funds started to crunch numbers on the likely economic damage and the travel and trade restrictions needed to contain the virus.

Morgan Stanley said on Wednesday that assuming the spread of the virus peaks before the end of this quarter, the damage to global gross domestic product growth could be up to 0.3 percent point for the first quarter and another 0.4 point if it spread for a further three or four month.

JPMorgan and ING said that as the situation stands they expected China’s full-year growth rate to slow to 5.6% in 2020 from 6.1% last year. Citi forecast a slowdown to 5.5%.

Markets are increasingly focusing on the regional damage more than the global hit. Wall Street’s S&P 500 ended only slightly lower overnight, but Asian markets plunged today – some, such as Taiwan, are only now returning from the lunar new year break.

Shanghai remains closed. Taiwan’s technology—heavy equity benchmark dropped almost 6% overnight. Hong Kong’s Hang Seng lost almost 3% and Tokyo and Seoul fell almost 2%.

European and U.S. stock futures also felt the heat and fell almost 1%. China’s offshore yuan resumed its slide to late December levels against a generally strengthening dollar. Gold gained, dollar/yen was back below 109 and oil prices were down.

Ten-year U.S. Treasury yields slid to three-month lows at 1.5530% and the yield curve between three-months and 10-years inverted again. The VIX U.S. equity market volatility gauge jumped back above 18% first thing Thursday.

The Fed left policy unchanged as expected overnight and didn't mention the impact of the virus in its formal statement. However, Chairman Jerome Powell said the central bank was monitoring the fallout, and markets have started to speculate about the chances of a Fed rate cut should the economic impact worsen over the coming months.

The U.S. earnings season continues, with aggregate readings ahead of forecasts even if the big tech bellwethers showed differing results.

Facebook’s shares dropped about 7% in after-hours trade after its latest update while electric carmaker Tesla’s stock – which has more than doubled in about three months – added another 13% after the bell on its earnings report. Microsoft also beat forecasts. Amazon reports later.

Elsewhere, sterling traded just above $1.30 as markets awaited the Bank of England’s first policy decision of the year later today, amid intense speculation over whether it will cut interest rates. Rates markets put the chances of a quarter-point cut in the 0.75% policy rate at about 50-50.

In European corporate news, Deutsche Bank stocks fell 0.5% after it posted a larger-than-expected annual loss, its fifth in a row. That further reduces hopes banks will recover this year cheap valuations offset pressure from negative interest rates.

Swatch shares fell 4% after the company said it expects the coronavirus scare and Hong Kong's unrest to cut into sales in Hong Kong. Car makers - the worst performers this year amid worries over slowing growth and higher U.S. tariffs - rebounded.

Volvo jumped 5% after it delivered strong results. Nokian also gained 5% after reports that activist investor Elliott had built up a stake in the tyremaker.

Unilever shares rose 1.4%. after a slightly better-than-expected rise in quarterly sales. Royal Dutch Shell dropped 4% following a bigger-than-expected 50% drop in fourth-quarter profit.

— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —

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