Coronavirus fears rattle shares and oil market

Global equity markets and oil prices fell sharply on Monday as the fast-spreading coronavirus hit sectors from travel to manufacturing amid warnings that the disease would hit China’s economic growth.

The S&P 500 index was down 1.4 per in early afternoon trading in New York while both the UK’s FTSE 100 and the European composite Stoxx 600 closed 2.3 per cent lower. Brent crude, the international benchmark, fell 3 per cent to $58.86 a barrel. Markets in China and Hong Kong were shut for the lunar new year.

Investors are braced for a hit to first-quarter domestic growth as the virus weighs on consumer spending and travel during the new year holiday, which the Chinese government extended until next week in an effort to contain the outbreak. 

Chinese state media reported that 81 people had died while 2,844 were infected. The mayor of Wuhan said the number of cases in the city where it originated could rise by 1,000 and a Chinese government minister warned that the virus was infectious during its incubation period.

The threat to Chinese manufacturing was underlined on Monday when international carmakers including Nissan and the French groups PSA and Renault said they were preparing to pull foreign staff from plants in parts of China that had been hit by the virus.

The manufacturing hub of Suzhou — home to factories owned by companies including iPhone contractor Foxconn — has postponed the return to work of millions of migrant labourers for up to a week.

Lee Hardman, a currency analyst at Japanese bank MUFG, said the virus marked “a setback for the global economy and manufacturing sector, which had been showing tentative signs of improvement in recent months”.

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International banks, which have been expanding aggressively in China in recent years, are keeping potentially exposed employees at a distance. Credit Suisse sent its staff in Hong Kong a memo instructing them to stay away from its regional headquarters if they had visited mainland China in the past 14 days. Shanghai, China’s financial capital, has ordered companies not to reopen until February 9.

Zhou Xianwang, Wuhan’s mayor, acknowledged government failings in handling the crisis. “We need to improve the ability to address public health events . . . and manage emergencies,” he told CCTV, China’s state broadcaster.

He admitted that the local authorities had not made “a timely disclosure” about the virus but he said Beijing was in part responsible. “This is an infectious disease and must be disclosed according to law. Local governments cannot disclose the disease until it gets authorisation to do so,” he said.

Foreign countries were scrambling to help their citizens in Wuhan. The Indian government said it was taking steps to “prepare for possible evacuation” and Germany’s foreign minister said: “We are considering a possible evacuation of all Germans who want to leave”.

Meanwhile the virus continues to spread around the world. The US has confirmed cases in Washington state, Chicago, California and Arizona while Australia has reported five cases, South Korea four and Hong Kong five. Taiwan, Thailand, Vietnam, Singapore, Malaysia, Nepal, Cambodia, Sri Lanka and Canada have also announced cases.

The US government said it was considering broadening screening at the border and changing its recommendations on where Americans should travel to try to slow the virus’s spread.

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Coronavirus has now spread to 15 countries with 2881 confirmed cases and 80 deaths

Underscoring concern among Chinese policymakers over the economic fallout from the outbreak, China’s banking and insurance regulator announced moves to help businesses affected by the crisis.

The China Banking Regulatory Commission said companies would receive support “through measures such as encouraging appropriate lowering of loan interest rates [and] improving arrangements for loan renewal policies”.

Andrew Milligan, head of global strategy at Aberdeen Standard Investments, said: “Even on the assumption that the authorities do get on top of this outbreak, there will be some short-term economic shock.” But he added: “That is a long way from saying the outlook for global markets will be materially different. It’s still early days.”

The coronavirus outbreak comes as China’s economy is already growing at its lowest rate in almost 30 years. In 2019, the economy grew just 6.1 per cent. As the US-China trade war has hit exports, consumption — which is now threatened by the outbreak — has become a far more important source of growth.

“Everything depends on how rapidly it spreads and how serious it gets, but in principle this could have a serious impact on consumption,” said Michael Pettis, a finance professor at Peking University and senior fellow at the Carnegie-Tsinghua Center. “People are not going out to restaurants and bars.”

In the UK, British Airways owner IAG’s share price dropped sharply along with other airlines. British fashion label Burberry, which is heavily exposed to the Chinese market, was one of the biggest luxury victims, closing down 4.8 per cent. Japan’s Topix, one of the only major regional stock indices trading on Monday, fell 1.6 per cent.

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Investors piled into haven assets, with gold rising 0.6 per cent to $1,581 per troy ounce. The benchmark 10-year US Treasury yield, which moves in the opposite direction to prices, fell 8 basis points to 1.6 per cent, its lowest level since October.

Additional reporting by Stephen Morris and Neil Hume in London and Gregory Meyer in New York and Don Weinland in Beijing



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