Risk-off returns as virus worries hit US, Europe, Asia

United States

Stocks sagged amid reports of rising coronavirus cases in South Korea and China, though merger news and solid economic data helped trim losses. The Dow industrials and S&P 500 both declined 0.4 percent, while the NASDAQ was off 0.7 percent.

M&A news and earnings gave the market some support. E-Trade, the online broker, jumped 22 percent on news it would be acquired by Morgan Stanley, which fell 4.5 percent.

Among sectors in the S&P 500, technology shares were off the most, with weakness across software and chipmakers. Health care also suffered, with managed care hit by perceptions that Bernie Sanders, an industry critic, could well become the Democratic presidential nominee. Communications also lagged, reflecting a selloff in ViacomCBS on poor earnings. Financials beat the tape on gains in regional banks and online brokers. Industrials outperformed on gains in machinery shares. Energy got a boost from rising crude oil prices. Defensive sectors real estate and utilities were the only actual gainers.

Among companies in the news, Domino's Pizza rallied 26 percent after beating market expectations for earnings and revenues, and boosting its dividend. Zillow, the real estate broker, surged 17 percent after beating expectations and reporting a wide surge in business.

On the downside, Six Flags Entertainment, the theme park company, fell 16 percent after a big earnings miss, and much weaker 2020 guidance, a cut in its dividend. ViacomCBS dropped 18 percent after an earnings miss, including a loss reflecting merger costs. Boston Beer was another notable loser, off 8 percent on an earnings miss. Hormel Goods fell 6 percent after warning of weakening Chinese demand.

In US economic data, February's Philadelphia Fed general business conditions index jumped to a far higher-than-expected 36.7 for a nearly 20 point gain this month. Separately, jobless claims are coming down noticeably. The February 15 week was the sample week for February's employment report and a comparison with the January 18 sample week shows sizable improvement: down 13,000 to 210,000 and down 7,250 for the 4-week average which at 209,000 is the lowest since April last year.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 9 cents to US$59.25, while gold rose US$9.90 to US$1,622.60. The US dollar rose against most major currencies. The US Treasury 30-year bond yield declined 4 basis points to 1.97 percent while the 10-year note yield was also down 4 basis points at 1.52 percent.

Europe

Risk-off returned Thursday on renewed worries about the coronavirus spreading outside China and a warning from the world's largest shipping company about the virus's impact. The Europe-wide STOXX and the German DAX both fell 0.9 percent, the French CAC fell 0.8 percent, and the UK FTSE-100 eased 0.3 percent.

The virus worries mostly reflected a spike in the number of cases in South Korea. There was also rising skepticism about shifting Chinese methodology for tracking cases, which has cast more doubt on the official statistics. On the positive side, China cut lending rates for new corporate and household loans, and January Chinese lending data exceeded market expectations.

On the virus front, shipping company A.P. Moller-Maersk A/S (down 3.9 percent) said it faces "considerable uncertainties" due to the outbreak's impact on global trade. Among other companies in focus, Air France-KLM (off 3.5 percent) issued weaker guidance for earnings, and earnings disappointments hit French insurance giant AXA SA (off 3.3 percent) and telecom Telefonica SA of Spain (down 3.4 percent).

In economic data, the latest GfK survey showed German consumer confidence was buoyant at the start of the year and is expected to remain so over the near-term. The February climate indicator was confirmed at a solid 9.9 and March is expected to dip just a tick to 9.8. Separately, UK retailers began 2020 on a surprisingly firm note. Following a 0.5 percent monthly fall in December, sales staged a solid rebound with a 0.9 percent gain, their best performance since last March.

Asia Pacific

Most Asian markets closed higher Thursday, with Chinese markets making out-sized gains after the People's Bank of China lowered its new benchmark rate, the Loan Prime rate, by 10 basis points to 4.05 percent. Although this move was relatively small and in line with expectations, it provides further evidence that officials are taking steps to ensure that liquidity and financial conditions are supportive as businesses and consumers cope with the disruption caused by the coronavirus outbreak.

The Shanghai Composite index closed up 1.8 percent, with moves elsewhere in the region relatively subdued. Japan's Nikkei and Topix indices rose 0.3 percent and 0.2 respectively, Australia's All Ordinaries index also closed 0.3 percent higher, and Hong Kong's Hang Seng index fell 0.2 percent.

Chinese bank lending data showed a big increase as it often does in January, with the amount of new loans totaling CNY 3.34 trillion, up from CNY1.14 billion. A broader measure of aggregate financing, which also includes stock issuance and bond dales, also rose sharply. Although these increases may also reflect efforts by authorities to support liquidity conditions, they are nevertheless in line with the normal seasonal pattern, with Chinese banks typically front-loading much of their annual lending at the start of the year.

Australia's labor market saw an increase of 13,500 in the number of employed persons in January, down from an increase of 28,900 in December. The number of part-time employees fell in January, but there was a strong increase in the number of full-time employees. The unemployment rate picked up from 5.1 percent in December to 5.3 percent in November, while the participation rate rose slightly from 66.0 percent to 66.1 percent. The increase in the unemployment rate and its persistence above 5.0 percent will likely reinforce the view of officials at the Reserve Bank of Australia that there remains significant spare capacity in the labour market, and suggest that the RBA's bias is likely to remain in favor of further policy easing in the months ahead.

Looking ahead*

On Friday in Asia/Pacific: Japanese CPI and PMI composite flash reports are scheduled. In Europe: PMI composite flash reports for France, Germany, Eurozone, and UK are due for release, plus UK public sector finances and Eurozone HICP data. In North America, Canadian retail sales, US PMI composite flash, and US existing home sales reports are scheduled.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

© 2020 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

Share: