Stocks slumped and bonds rallied as concern over the impact of a deadly virus that originated in China rattled global markets.
The S&P 500 Index slid the most in almost four months, with energy and tech companies leading losses. A gauge of U.S. equity volatility surged above its one-year average. The Dow Jones Industrial Average almost erased its advance for the year. China-exposed U.S. names Wynn Resorts Ltd. and Nvidia Corp. plunged more than 4 per cent and airlines sank. European shares fell as much as 2.4 per cent.
Chinese markets are said to resume trading after the Lunar New Year holiday on Feb. 3, but assets that track the country’s largest stocks took a nosedive. The iShares MSCI China ETF and Invesco China Technology ETF dropped at least 3.9 per cent. China-based Alibaba Group Holding Ltd. and Yum China Holdings Inc. also slumped. The offshore yuan slid toward the lowest this year, breaching key technical levels.
The flight to safety, which comes ahead of this week’s Federal Reserve meeting, saw volumes in Treasury futures jump to double their regular levels in Asia. The yield on 10-year U.S. bonds dropped to the lowest since October. Similar-maturity German securities extended their advance to the longest in almost six months. The Swiss franc, the Japanese yen and gold paced gains in haven assets. Oil slipped to a more than three-month low. Base metals and bulk commodities also got hurt.
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Fears that China has failed to contain the pneumonia-like virus — which has killed at least 80 people and infected more than 2,700 — is spurring caution at the start of a week jam-packed with earnings. And such is the nervousness over the severity of the disease that money markets brought forward bets for a U.S. Fed interest-rate cut by a month to November.
“This is now a sell first, ask questions later situation,” said Alec Young, managing director of global markets research at FTSE Russell. “Markets hate uncertainty, and the coronavirus is the ultimate uncertainty — no one knows how badly it will impact the global economy. China is the biggest driver of global growth, so this couldn’t have started in a worse place.”
As global stocks sell off, JPMorgan Chase & Co. strategists say this actually could end up a buying opportunity. They retained a constructive view on world equities, adding that in the past, the more stocks have fallen on similar fears, the more they have rebounded later.
Both the S&P 500 and MSCI All-Country World Index surged to records this month as 2020 started on a jubilant note amid optimism over the U.S.-China trade deal.
“We thought the markets were overdue for a pullback,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, told Bloomberg TV. “Valuations are extremely stretched right now and positioning is extremely euphoric. We’ve said that if the right catalyst came along, markets would be ripe for a pullback.”
Here are some events to watch out for this week:
- Tech giants Apple, SAP, Facebook, Samsung and South Korean chip maker SK Hynix announce earnings, as do Boeing, International Paper, GE, United Technologies, Lockheed Martin, Caterpillar, Lockheed Martin, Unilever, Exxon Mobil, Shell and Chevron.
- The Senate impeachment trial of President Donald Trump continues in Washington Monday.
- Fed policy makers are expected to open 2020 the same way they closed 2019 — by holding interest rates steady Wednesday.
- The BOE meeting is highly anticipated Thursday after a series of dovish comments raised speculation policy makers could lower interest rates.
- The U.S. reports fourth-quarter GDP Thursday.
- The U.K. is scheduled to leave the European Union Friday.
These are the main moves in markets:
- The S&P 500 sank 1.4 per cent as of 12:02 p.m.
New York time.
- The Stoxx Europe 600 Index sank 2.3 per cent.
- The MSCI Emerging Market Index decreased 1.6 per cent.
- The Bloomberg Dollar Spot Index increased 0.2 per cent.
- The euro fell 0.1 per cent to US$1.1017.
- The Japanese yen appreciated 0.3 per cent to 108.96 per dollar.
- The yield on 10-year Treasuries slid eight basis points to 1.60 per cent.
- Germany’s 10-year yield dipped five basis points to -0.39 per cent.
- Britain’s 10-year yield declined five basis points to 0.508 per cent.
- The Bloomberg Commodity Index sank 1.5 per cent.
- West Texas Intermediate crude dipped 2.8 per cent to US$52.69 a barrel.
- Gold rose 0.6 per cent to US$1,587.70 an ounce.With assistance from Alfred Cang, Saket Sundria, Cormac Mullen, Todd White, Yakob Peterseil and Sophie Caronello
SOURCE : FINANCIAL POST