Worries about the economic consequences of the new coronavirus epidemic hit financial markets on Monday, as investors fled to safe havens and began to rebalance their portfolios to deal with the effects of the outbreak.
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Fast-rising infection numbers in South Korea and Italy helped spook markets, creating a greater sense of uncertainty.
US markets followed peers around the world, dropping sharply amid signs that the broad-based sell-off may not be over.
The S&P 500 closed down 3.35 per cent, while the Dow Jones Industrial average lost more than 1,000 points, or just more than 3.5 per cent.
The tech-heavy Nasdaq faced similar declines, while US government bonds rallied and yields fell, amid a flight to safety. Ten-year Treasury yields were near a record low. Oil prices also declined.
US President Donald Trump, who has touted the stock market as barometer of his success, said the “coronavirus is very much under control in the USA.”
“Stock Market starting to look very good to me!” he added.
Japanese shares plunged Tuesday morning following sharp falls on overseas markets.
The benchmark Nikkei 225 Stock Average lost 864.46 points, or 3.7 per cent, to stand at 22,522,28, at 9:12 am (0012 GMT) after briefly falling as much as 4 per cent.
In Germany, Frankfurt’s main DAX index ended the day 4.01 per cent down, slipping at one point in the day under the 13,000-mark. The eurozone’s blue-chip Eurostoxx 50 likewise slumped by 4.01 per cent. The FTSE in London dropped 3.34 per cent.
In Italy, which is facing Europe’s worst coronavirus outbreak, the main FTSE MIB index on the Milan stock exchange was down by about 5.4 per cent.
“It is clear that the economic consequences of the corona epidemic will be substantial,” DZ bank analyst Michael Bissinger said.
“Investors are for now pulling the emergency brake,” market observer Andreas Lipkow of the Comdirect Bank added.
In Italy the outbreak was affecting the two highly industrialized northern regions of Lombardy and Veneto, and their slowdown could further depress a stagnant national economy.
In Germany, the shares of sectors sensitive to the economic cycle were under particular pressure.
The airline Lufthansa took a hit of more than 8 per cent, while the value of shares in Deutsche Bank and the automotive supplier Continental fell by more than 5 and 4 per cent respectively.
The travel, financial and tech sectors were all under pressure in the US.
The US airline United Airlines announced on Monday it has reduced its earnings outlook for 2020 as a result of cancelled business in China following the coronavirus outbreak.
The company has temporarily stopped flying several trans-Pacific routes which would have made up 10 per cent of 2020 revenue.
However the airline said it could offset some of this loss in cost savings from reduced fuel prices and still predicts earnings growth. It said it is on track to reach its earnings target of 11 to 13 dollars per share.
Credit card firm Mastercard cut its revenue forecast Monday, saying year-over-year net revenue growth in the first quarter will be approximately 2-3 percentage points lower than projected earlier. Nevertheless, it expects year-over-year net revenue growth of 9 to 10 per cent in the first quarter on a currency-neutral basis, excluding acquisitions.
Factories in Asia may be affected by the virus spread, adding to the panic, on top of worries about how consumers will react, particularly with China becoming an ever more important market.
Investors were pulling back from the European luxury industry, with the shares of LVMH falling by 4.4 per cent in Paris. LVMH Moet Hennessy Louis Vuitton is the world’s leading luxury goods group.
The decline in international tourism associated with the spread of the coronavirus was mostly to blame, according to UBS bank analyst Zuzanna Pusz, as 43 per cent of the luxury sector’s sales comes from purchases by tourists.
The safe haven investment of gold saw its price rise to a new seven-year high on Monday, reaching 1,679 dollars per troy ounce (about 31.1 grams).
Oil prices came under pressure, with the world oil benchmark Brent falling some 4 per cent to about 56 dollars per barrel.
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