Duncan Donald

Mon, Feb 24

Global spread of Coronavirus sends stocks plunging at the weekly open.


The markets opened in freefall as we came into the new trading week as the virus spreads across the globe into South Korea, Japan and Italy.  As last week closed with the number of new cases reported in China starting to show signs of receding there was a glint of hope that we may be coming towards the end of the worst of the virus. However, with several new cases being reported in Beijing over the weekend as well as rising numbers in Korea, Japan and now the 5th death in Italy, the markets plunged through fear of the global implications of such an epidemic.


With stocks having a broadly positive week last week, as the indices marched on in 2020 they most certainly came crashing down this morning, with most major stock futures opening over 2% down, and the South Korean stock market is nearly double that. With Japan closed for a national holiday today, it will be expected to see a stock market gap at tomorrows open. In Italy curfews in a number of towns show how seriously they are taking the threat of contagion and concerns grow over the country’s ability to deal with the economic slowdown this will bring. This indeed is the story for the global economy, with nearly 80,000 confirmed cases now and thousands of factories and businesses closed what will the impacts be and when will they start to show.


Naturally, oil is coming under heavy pressure trading down towards $50 per barrel this am, large shipping companies like Maersk are starting to manage expectations by forewarning its profit outlook, a pattern that will inevitably be mirrored across most importer/exporters.  The main flight to comfort we are seeing is towards gold. After a positive week last week, the gap at this week open took the commodity up to 1680, before a pullback and retest as the London market opened.  The safe-haven opportunity is not the only reason for gold investment, with the outlook for global interest rates being to the downside, meaning for many countries it could soon cost to hold cash, gold presents itself as a haven to negative rates and for that reason whilst the virus continues to grab the headlines the outlook will remain bullish.  


With a relatively quiet week ahead including no Central Bank updates or minutes, the focus will remain on virus updates and profit warnings. What will be interesting is how the US markets deal with the fall in stock markets. Throughout this year any significant fall has been greeted by buyers who are happy of the opportunity of value and look to capitalise on the temporary pullback. However, a prolonged period of selling could really send panic through the markets and start to bring short covering.  From the outset, it looks like we will have an interesting week as the market awaits a medical breakthrough to fight the virus.


The week ahead:


  •         Ifo Business Climate – Germany
  •         Dallas Manufacturing Index - US


  •         GDP Growth – Germany
  •         House Price Index – US
  •         Richmond Fed Manufacturing Index - US


  •         New Home Sales - US


  •         Business Confidence – Eurozone
  •         Housing Prices – UK
  •         GDP Growth – US
  •         Durable Goods – US
  •         Unemployment Rate – Japan
  •         Retail Sales – Japan
  •         Industrial Production - Japan


  •         Gfk Consumer Confidence – UK
  •         GDP Growth – France
  •         Unemployment Rate – Germany
  •         Inflation Rate – Eurozone
  •         Chicago PMI – US
  •         Michigan Consumer Sentiment – US
  •         Personal Spending/Income - US