Daily market review

United States

Risk-off returned Friday on the news of the spread of the coronavirus outside China, and on surprisingly poor US purchasing managers data. The Dow industrials lost 0.8 percent, the S&P 500 dropped 1.1 percent, and the tech-heavy NASDAQ fell 1.8 percent.

News of a spike in virus cases in Korea, and rising numbers in Japan and in the Middle East added to worries, along with highly publicized clusters of cases affecting hospitals in Beijing. In the US, the virus was blamed for an unexpected drop in business activity, especially in services, in the latest purchasing managers' report.

The services PMI dropped to 4-year lows, falling roughly 4 points to 49.4 as respondents, citing the virus, reported slowing orders. Manufacturing held up better, falling roughly 1 point, though the 50.8 level is the softest since August last year. Both production and new orders slowed in the month with respondents citing difficulties, including delivery delays, tied to the virus.

Among sectors in the S&P 500, only defensive sectors utilities and real estate managed gains, with technology getting hit hardest on renewed worries about the Chinese economy. Communications services and consumer discretionary shares were also notable losers. Market heavyweight Apple fell 2.3 percent, and Exxon Mobil lost 1.2 percent as oil prices fell. Netflix, the streaming video company, fell 1.5 percent, and Facebook was off 2.1 percent in the downdraft.

Among companies in the news, Deere, the farm equipment maker, rose 7 percent on an earnings and revenues beat and in-line guidance, mostly reflecting improved farmer sentiment amid hopes for improving exports to China. Coca-Cola rose 0.7 percent after warning that the coronavirus would hurt its business but saying it still expects to hit its 2020 guidance.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 89 cents to US$58.43, while gold surged US$26.00 to US$1648.60. The US dollar was mixed but mostly weaker against major currencies. The US Treasury 30-year bond yield declined 5 basis points to 1.92 percent while the 10-year note yield was also down 5 basis points at 1.47 percent.


Virus worries and weak US purchasing managers' data hurt European equities Friday. The Europe-wide STOXX fell 0.5 percent, the German DAX declined 0.6 percent, the French CAC slipped 0.5 percent, and the UK FTSE-100 was off 0.4 percent.

Risk assets reacted badly to an uptick in Chinese cases of the COVID-19 virus, along with rising infections in Japan, Korea, and elsewhere. Markets also traded off on news from the US that the virus appears to have hit US services in addition to manufacturing, as evident in flash PMI composite data for February.

Among companies in the STOXX 600, utilities, construction & materials, real estate, and health care outperformed, while losers included autos, oil & gas, banks, technology, industrial goods & services, and basic resources.

Among companies in the news, Burberry, the luxury UK clothier, dropped 2.6 percent after an analyst downgrade. Pearson, the UK publisher, fell 5 percent on an earnings miss. Air France fell 3.3 percent on its assessment of the impact of the virus on its outlook. On the plus side, Allianz rose 0.4 percent after the German financial services company beat estimates and raised its dividend and buybacks. Sika, a Swiss chemicals company, rose 4.7 percent after beating earnings expectations. Jeronimo Martins, a Portuguese food company, rose 2 percent after topping earnings expectations.

In economic data, Eurozone private sector business activity remained subdued in February. At 51.6, a 6-month high, the flash composite output index was only 0.3 points above its final January reading and, while stronger than expected, still too close to the 50-expansion threshold to signal any significant pick-up in activity. Separately, February was another soft month for German business activity. At 51.1, the PMI flash composite output index was down a tick versus January and close enough to the 50-expansion threshold to signal only a sluggish increase in business activity.

Asia Pacific

Major Asian markets posted mixed results on Friday, with their performance also diverging over the week as investors continued to assess the likely economic impact of the coronavirus outbreak. Chinese officials on Friday reported that production and trading activity in key industrial areas was resuming at a favorable pace this week, but there remain serious concerns about the spread of the outbreak both inside and outside of China.

The Shanghai Composite index was among the strongest performers in the region both on the day and on the week, up 0.3 percent and 4.2 percent respectively. Weak Japanese data published Friday, however, weighed on domestic markets. The Nikkei index fell 0.4 percent on the day and 1.3 percent on the week, while the Topix index was flat on the day and dropped 1.7 percent on the week. Hong Kong's Hang Seng index closed down 1.1 percent on the day and 1.8 percent on the week, while Australia's All Ordinaries index fell 0.3 percent on the day and was flat on the week.

Flash Japanese PMI survey data were the main highlight of the regional data calendar Friday and are among the first indicators to provide information about the impact of the coronavirus outbreak on regional activity and sentiment in February. Conditions across the Japanese economy appeared to have deteriorated significantly so far this month. The flash estimate for the manufacturing sector survey's headline index is 47.6, down from 48.8 in January and, if confirmed by final data, would indicate that conditions in the sector are at their weakest since 2012. The flash estimate for the services sector survey's headline index is 46.7, down sharply from 51.0 in January, which would would indicate that conditions in the sector are at their weakest since 2014. The flash estimate for the composite survey's sector index is 47.0, down from 50.1 in January.

Japanese inflation data also published Friday showed steady price pressures. Headline CPI inflation moderated from 0.8 percent in December to 0.7 percent in January, largely reflecting a smaller increase in food prices, while underlying measures of inflation were little changed. These numbers suggest that progress towards the Bank of Japan's 2.0 percent inflation target remains very slow but are unlikely to persuade officials that there has been a loss of momentum towards meeting that target, a development that they have advised would trigger an easing in policy.

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