China virus outbreak hits global stocks and oil markets

A pedestrian walks in front of an electric quotation board displaying the morning numbers on the Nikkei 225 Index on the Tokyo Stock Exchange in Tokyo on January 27, 2020. - Tokyo's key Nikkei index dropped more than two percent at the open on January 27 on concerns over the potential impact of a new coronavirus that has killed 80 people in China. (Photo by Kazuhiro NOGI / AFP)

Gold gained along with the safe-haven Japanese yen and Swiss franc, as the number of people infected by the virus in a fast-spreading health crisis surpassed 8,100 people globally, more than the total from the 2002-2003 SARS epidemic.

Global equity markets tumbled on Thursday as the death toll from China’s coronavirus outbreak hit 170, pummelling oil prices and inverting a closely watched bond as investors worried about the world’s second-largest economy.

Gold gained along with the safe-haven Japanese yen and Swiss franc, as the number of people infected by the virus in a fast-spreading health crisis surpassed 8,100 people globally, more than the total from the 2002-2003 SARS epidemic.

The World Health Organization declared a public health emergency of international concern.

Tedros Adhanom Ghebreyesus, WHO director-general, said the group’s greatest concern is the potential for the outbreak to spread to countries with weaker health systems. The virus has spread to 18 countries.

The International Monetary Fund said it was too soon to quantify the potential economic impact of the virus, which has halted tourism and commerce throughout China.

Slower growth

Damage to China’s economy is still hard to assess, but Wall Street economists see slower growth. Fitch Solutions said it maintains its real GDP growth forecast for China at 5.9 percent for 2020, but the impact of the virus could reduce that to 5.4 percent.

Major equity indexes slid across the globe, with the declines sharper in Asia and Europe than on Wall Street. Fading risk appetite sent yields on US Treasuries down to the lowest in more than three months. A closely watched part of the yield curve briefly inverted.

Investors remain confused about the strength of the US economy, yet they still own stocks because alternatives do not seem attractive, said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

“We continue to vacillate between the view that we’re headed toward recession and that we’re going to have economic growth,” Meckler said. “There are times like today where the virus seems like it could push us back toward weakness.”

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 2.42 percent lower while emerging market stocks lost 2.45 percent.

Latine American assets hit hard

Latin American assets have been hit hard by expected demand disruptions in China, one of the region’s largest export destinations.

The pan-European STOXX 600 index lost 1.01 percent while MSCI’s gauge of stocks across the globe shed 0.65 percent. The world index is weighted 55 percent to US stocks.

Shares in London fell 1.36 percent, extending losses as the pound climbed against the dollar after the Bank of England kept interest rates unchanged.

Disappointing earnings in Europe weighed on blue-chips, adding to the gloom.

Royal Dutch Shell fell 4.4 percent after fourth-quarter profit halved to its lowest in more than three years.

The Dow Jones Industrial Average fell 40.44 points, or 0.14 percent, to 28,694.01. The S&P 500 lost 6.43 points, or 0.20 percent, to 3,266.97 and the Nasdaq Composite dropped 18.83 points, or 0.2 percent, to 9,256.33.

The benchmark 10-year Treasury note rose 12/32 in price to yield 1.5548 percent. The yield curve between three-month bills and 10-year notes inverted for the second time this week, a bearish economic signal.

German government bond yields fell sharply, with 10-year German bund yields dropping to a three-month low of -0.445 percent.

The dollar fell on news the US economy posted its slowest annual growth in three years in 2019 and personal consumption weakened dramatically. The dollar index fell 0.13 percent after it had gained 0.65 percent in the last two weeks as investors sold off risk assets.

Still, coronavirus fears persisted, boosting the Japanese yen and Swiss franc.

The euro rose 0.19 percent to $1.103. The yen strengthened 0.22 percent at 108.78 per dollar.

Gold prices rose, with US gold futures settling up 0.8 percent at $1,583.50 an ounce.

Oil prices fell more than 2 percent to the lowest in three months on virus-related worries, while traders also considered the possibility of an early meeting or the Organization of the Petroleum Exporting Countries.

Brent crude lost $1.52 to settle at $58.29 a barrel, while US crude fell $1.19 to settle at $52.14 a barrel