Global shares: US, Europe, Asia weaken on China virus fears

United States

US equities were flat to weaker Tuesday in quiet trading, with markets depressed by slight risk-off sentiment in light of news about the Chinese coronavirus, including news in the afternoon that a case had been reported in the United States. Also in the news is the beginning of the Senate impeachment trial of Donald Trump that Republicans, who have a clear majority, want to wind up before the President's annual State of the Union address on February 4. The Dow industrials fell 0.5 percent, the S&P 500 slipped 0.3 percent, and the NASDAQ was down 0.2 percent.

The respiratory virus has caused several deaths in China, and appears to be capable of spreading among humans, in addition to initial animal-to-human transmission. In company news Boeing fell 3.4 percent on reports that the company, in what would be a further delay, doesn't expect the 737 Max to return to operation until mid-year.

Long-haul airlines were hit by worries about travel suffering from the Chinese virus, with United Airlines off 4.4 percent. On the positive side, real estate and utilities, defensive plays, outperformed, along with technology and health care. Energy and materials were the worst performers, with industrial metals and chemicals leading declines.

Among companies in the news, Halliburton Company, the exploration and production leader, fell 0.8 despite beating earnings forecasts and projecting strong growth overseas. Automaker Tesla rose 7.2 percent after an analyst upgrade.

Markets were awaiting Q4 earnings from Dow members IBM, Intel, and Netflix after the close Tuesday as the reporting season heats up, and expectations call for strong results in the technology and communications sectors.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 75 cents to US$64.47 while gold fell US$2.60 to US$1557.70. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 5 basis points to 2.23 percent while the 10-year note yield also fell 5 basis points to 1.77 percent.


Worries about the spreading Chinese coronavirus hurt European equities Tuesday, but major indexes ended well above early lows. The Europe-wide STOXX 600 eased 0.1 percent, the German DAX firmed 0.1percent, the French CAC declined 0.5 percent, and the UK FTSE-100 also fell 0.5 percent.

Market concerns about the virus, including news that it could spread between humans, were offset in part by surprisingly positive German business confidence figures. Markets also benefited from reports that French President Macron and President Trump had agreed to hold off on tariffs on digital services until year end, while negotiations continue.

In economic data, the ZEW current business conditions index rose more than 10 points to minus 9.5, its fourth consecutive increase and its best reading since last July. Expectations rose 16.0 points at 26.7. Meanwhile, UK employment figures were also better than expected, as UK claimant count joblessness was up a smaller than expected 14,900 at year-end, matching its downwardly revised November increase.

Among stock sectors, basic resources, oil & gas, travel & leisure, and luxury goods makers with heavy exposure to China were among the weakest performers. Outperformers included financial services, health care, and real estate.

Air travel companies dropped on the virus news, with Lufthansa down 3.5 percent, and British Airways parent IAG off 3.0 percent. On the positive side, Learning Technologies, a UK software company, rose 14.1 percent after an earnings beat. SHL Telemedicine, an Israeli medical technology company, said it was in talks to be acquired.

Asia Pacific

Major Asian markets sold off Tuesday, with losses in Hong Kong particularly sharp after ratings agency Moody's downgraded the government's credit rating, citing the impact of recent political unrest. Concerns about the outbreak of a serious virus in China also weighed on investor sentiment in the region. The Hang Seng index closed down 2.8 percent on the day, with shares of tech company Tencent among the weaker performers after reports that its chairman sold a substantial amount of his holdings. The Shanghai Composite index fell 1.4 percent on the day, while Japan's Nikkei and Topix indices dropped 0.9 percent and 0.5 percent respectively after the Bank of Japan left policy settings on hold but revised down its inflation forecasts. Australia's All Ordinaries index outperformed with a loss of just 0.2 percent.

The BoJ left its short-term policy rate at minus 0.1 percent and kept the target level for the long-term 10-year yield at around zero percent at its policy meeting concluding Tuesday. Officials also retained their forward guidance that rates will need to stay at current or lower levels until they can be more confident that there has been no loss of "momentum" towards meeting their 2.0 percent inflation target. Officials also published revised growth and inflation forecasts Tuesday, with GDP forecasts revised a little higher and inflation forecasts revised a little lower for the current and next two fiscal years. Nevertheless, BoJ Governor Haruhiko Kuroda, speaking at the post-meeting press conference, argued that the underlying trend for inflation has not changed and remains "solid".

Hong Kong's headline consumer price index increased 2.9 percent on the year in December, down from 3.0 percent in November. Officials noted that ongoing pork shortages continued to boost food prices in December but that price pressures elsewhere in the economy were generally "modest or moderate".

Looking ahead*

On Wednesday in Europe, the following reports are scheduled: French business climate indicator, UK CBI industrial trends, and UK public sector finances. In North America, the Bank of Canada will make its monetary policy announcement and issue its monetary policy report, the Canadian CPI report is due, and US existing home sales figures will be released.

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