Daily market review

United States

Equities extended their flight from risk Friday on fears linked to the spreading coronavirus, and markets ignored strong economic reports though major indices did end well above their lows. The Dow industrials fell 1.4 percent, the S&P 500 lost 0.8 percent, and the NASDAQ recovered to end flat.

Markets rebounded from their worst levels in the afternoon after a statement from Fed Chair Jerome Powell that the Fed is prepared to act as appropriate to support the economy, and a report in The Washington Post that the Trump administration may propose tax cuts or other fiscal measures to cushion the impact of the virus. The World Health Organization raised its assessment of the global risk from the virus to "very high." Cases spiked in Korea, Iran, and Italy, and a new case was reported in Mexico. Businesses announced an array of disruptions as a result of the virus, including the cancellation of the Geneva Motor Show, along with earnings warnings.

Among sectors, defensive sectors appeared hardest hit Friday, along with financials, on falling interest rates, while tech and energy, which have been hit hardest earlier in the week, fared best, though still suffering losses.

Among companies in the news, VMWare, the software company, dropped 11 percent after an earnings miss and poor guidance in light of the virus and acquisition costs. Baidu, the Chinese search company, recovered to end up 0.1 percent after earlier declines on a warning of the virus impact on future business in China, and an earnings and revenues beat. Exxon Mobil was one of the few bright spots, up 3.3 percent, after finding buyers at the lows.

In US economic news, consumer sentiment ended February at 101.0, up 1 tenth from the preliminary score and up a sizable 1.2 points from January. Cut-off date for the survey was Tuesday of this week, which was not only before increasing reports of the virus' spread but also before further sharp declines in the stock market. The report notes that among the 20 percent of the sample who did mention the virus, the sentiment score was 11 points lower at 90.0, a level still consistent, however, with consumer strength.

Separately, the Chicago PMI rose to a higher-than-expected but still contractionary score of 49.0 in January, the highest score since August last year. Delivery times surged 7.9 points in the month to 61.3 with the report citing commentary that the coronavirus is already disrupting supply chains and is delaying shipments from China.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.46 to US$50.52, while gold, likely on profit-taking to raise cash needed for margin calls on losses in equities, fell US$68.00 to US$1,584.60. The US dollar was mostly weaker against major currencies. The US Treasury 30-year bond yield fell 12 basis points to 1.68 percent while the 10-year note yield declined 11 basis points to 1.15 percent.


Equities plunged again Friday, extending the week's dramatic selloff on worries linked to the spreading coronavirus. The Europe-wide STOXX fell 3.5 percent, the German DAX dropped 3.9 percent, the French CAC was off 3.4 percent, and the UK FTSE-100 dropped 3.2 percent.

Among sectors, airlines continued to lead to the downside, with British Airways parent IAG off 8.4 percent after warning of the impact of the virus. Other big losers included chemicals, with BASF down 5 percent after a similar warning. Insurance companies also took a hit, with Munich Re down 5 percent on an earnings miss and virus warning. Miners, oil & gas, and banks were also hit especially hard on slowdown worries. Utilities, autos, and personal & household goods held up better but still saw big drops.

Asia Pacific

The global selloff in equities, driven by escalating concerns about the coronavirus outbreak, continued during the Asian trading session Friday, with regional markets ending sharply lower. Losses on the week were in some cases the worst since the 2009 global financial crisis and took several regional indices into correction territory, down more than ten percent from their recent peaks. Japanese markets were among the weakest, with the request from Prime Minister Shinzo Abe Thursday for schools to shut down over March adding to concerns about the outbreak and its impact on the economy.

The Nikkei and Topix indices fell 3.7 percent and 3.6 percent respectively on Friday, with losses on the week reaching 10.0 percent and 9.8 percent respectively. Australia's All Ordinaries index also sold off aggressively again, closing down 3.4 percent on the day and 9.9 percent on the week. The Shanghai Composite index fell 3.7 percent, extending its weekly decline to 5.2 percent, while Hong Kong's Hang Seng index fell 2.4 percent on the day and 4.3 percent on the week. Regional currency moves were also pronounced, with safe-haven flows boosting the value of the Japanese yen but higher risk aversion pushing the Australian dollar to multi-year lows.

Japanese data for January published Friday largely pre-date the likely impact of the outbreak on activity and sentiment and had relatively little impact on investor sentiment. The unemployment rate rose from 2.2 percent in December to 2.4 percent in January, above the consensus forecast of 2.2 percent. Japan's industrial production index rose 0.8 percent on the month after advancing 1.2 percent in December, stronger than the consensus forecast for an increase of 0.3 percent and broadly in line with previously published PMI survey data. Retail sales fell 0.4 percent on the year in January after falling 2.6 percent in December, a smaller drop than the consensus forecast for a decline of 1.0 percent.

India's gross domestic product increased 4.7 percent on the year in the three months to December, up from growth of 4.5 percent in the three months to September and matching the consensus forecast. The Reserve Bank of India left policy rates on hold at its most recent meeting in early February. Despite some recent signs of improvement in industrial production and PMI survey data, officials judged that the economy is still relatively weak and noted several risks to the growth outlook. They forecast GDP will grow by 5.0 percent in the 2019-20 fiscal year and by 6.0 percent in the 2020-21 fiscal year.

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