Global stocks continued to plunge on Wednesday, as major companies began to count the financial cost of the spreading coronavirus.
Heavy selling in Asia and European markets on Wednesday followed another rout Tuesday on Wall Street where all three main indices lost around three per cent after officials said COVID-19 would likely take hold in the United States.
With cases being reported in more countries — and lockdowns in nations including Austria, Italy and Spain — traders are growing increasingly fearful about the impact on the global economy.
‘Markets continue to retreat as the coronavirus dominates headlines,’ said IG trading group analyst Chris Beauchamp.
Hong Kong stocks ended sharply lower again on Wednesday with the Hang Seng Index retreating 0.73 per cent, or 196.74 points, to close at 26,696.49.
The Shanghai Composite Index fell 0.83 per cent, or 25.12 points, to 2,987.93 and the Shenzhen Composite Index fell 2.71 per cent, or 52.56 points, to 1,890.60.
The benchmark Nikkei 225 index of Tokyo Stock Exchange lost 0.79 per cent, or 179.22 points, to 22,426.19, while the broader Topix index fell 0.75 per cent, or 12.09 points, at 1,606.17.
‘After seeing sharp falls of US shares overnight, the Nikkei started the session down more than 200 yen,’ Okasan Online Securities said in a commentary.
‘It extended losses as other markets in Asia fell. But bargain hunters came in as Chinese shares rebounded,’ it said.
London’s benchmark FTSE 100 index dropped below 7,000 points, erasing all gains won over the past year, while oil prices slid to the lowest levels in more than a year.
British drinks group Diageo, the maker of Guinness stout and Smirnoff vodka, on Wednesday said the coronavirus would slash its annual sales by up to £325 million ($422 million, 388 million euros).
Diageo, which produces also Baileys liqueur and Johnnie Walker whisky, said sales for the group’s financial year ending June 30 would be impacted by between £225 million and £325 million.
French food giant Danone said it expected to take a hit of 100 million euros ($109 million) in first-quarter sales.
‘What we appear to be seeing is the realisation that global economic growth could well come to a halt as the combined effects of a flu virus and belated attempts to stem the spread of it across the globe, raise the prospect of an economic sneeze,’ said CMC Markets UK analyst Michael Hewson.
The death toll is now at more than 2,700, while the number of infected is approaching 80,000, even if new cases in China, the epicentre, are falling.
With panicked investors seeking out safe havens, the yield on both 10-year and 30-year US Treasury bills are at record lows, while the Japanese yen is gaining.
However, the dollar was being kept in check by speculation that the Federal Reserve could cut interest rates to support markets, although for now officials are saying the US economy remains in rude health.
The VIX ‘fear’ index is at its highest level in more than a year, but gold, usually a main target for those seeking shelter from the turmoil, was subdued.
‘To suggest the market is a tad skittish over the coronavirus becoming a pandemic could very well be the understatement of the century with the virus morphing into the market’s biggest macro worry of the decade,’ said AxiCorp’s Stephen Innes.
However, Gorilla Trades strategist Ken Berman said that ‘in light of the quick spreading of the virus, the global economy is likely to suffer, at least, a short-term shock, but should the outbreak slow down during the spring, we could see a swift economic recovery.’
Earlier, Wall Street stocks suffered a second straight rout Tuesday, with losses picking up after US health officials warned the coronavirus was likely to hit the world’s biggest economy.
The Dow Jones Industrial Average plunged 3.2 per cent, or about 880 points, to 27,081.36. The broad-based S&P 500 sank 3.0 per cent to 3,128.21, while the tech-rich Nasdaq Composite Index lost 2.8 per cent to 8,965.61.
After starting the session higher, major US indices quickly reversed course and tumbled further after American health authorities urged local governments, businesses, and schools to develop contingency plans for an expected larger outbreak in the US.
‘Ultimately, we expect we will see community spread in this country,’ said Nancy Messonnier, a senior official with the Centres for Disease Control and Prevention (CDC).
‘It’s not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen, and how many people in this country will have severe illness.’
US stocks had been stable and throughout most of February, lingering near record highs, even as Chinese cases of coronavirus have soared and the virus has spread to more countries.
But investors have been unnerved the last couple of days following larger outbreaks in Italy and South Korea, among other places outside of China.
‘Bit by bit, US investors are seeing the prospects for global growth diminish,’ said Gregori Volokhine of Meeschaert Financial Services.
‘With the news of the last three or four days, it’s hard to be optimistic.’
In spite of the CDC statements, White House economic counsellor Larry Kudlow said US economic data remained solid and that the ailment remained ‘very tightly contained in the United States,’ he said on CNBC.
‘It’s mostly centred in China,’ Kudlow said, citing data showing the US economy on track for 2.1 per cent growth in the first quarter and citing recent reassuring economic reports.
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