Virus-hit stocks shed $3 trillion; safe havens thrive

LONDON (Reuters) – Risk aversion drove global stocks lower on Thursday, increasing their drop in value this week alone to more than $3 trillion, and U.S. Treasuries yields hit record lows as the coronavirus spread faster outside China than in.

The number of new infections in China – the source of the epidemic – was for the first time overtaken by new cases elsewhere on Wednesday, raising fears that the outbreak could become a pandemic.

The pan-European STOXX 600 index fell 2.5% and the blue-chip index in Italy – the worst-hit country in Europe – sank as dozens of European companies issued warnings about potential damage to their profits.

In the United States, Microsoft became the second trillion-dollar company to warn about its results after Apple. Its Frankfurt-listed shares were down 3%.

Global equities have now fallen for six straight days, and Wall Street’s volatility gauge was near its late-2018 highs.

(Graphic: Daily market value loss – here)

Spot gold rose 0.6% to $1,649 per ounce, just shy of the seven-year high it hit on Monday, and silver gained 1% to $18.03 an ounce.

“Safe-haven currencies are doing very well and gold is heading back higher, and unless we see a slowdown in the coronavirus cases outside China, risk sentiment will continue to be undermined,” said Peter Kinsella, global head of FX strategy at UBP in London

Yields on U.S. Treasuries, which fall when prices rise, dropped below 1.3% for 10-year debt and the yield curve continued to send recession warnings.


Markets are pricing a roughly even chance the Federal Reserve will cut interest rates next month and have almost fully priced in a cut by April. <0#FF:>

Yields on benchmark German 10-year debt fell to -0.5140%. Italian debt underperformed as the spread of the virus there raised fears of a recession.

Goldman Sachs said the equity market sell-off would create opportunities to add risk eventually and that it did not expect a deep bear market or U.S. recession.

“However, near term we feel that positioning and valuations are not yet depressed enough and uncertainty on the global growth impact from the coronavirus is likely to remain high,” Goldman Sachs said in a note to clients.

E-mini futures for the S&P 500 were down 0.9% and oil – sensitive to global growth – fell more than 2% to its cheapest in 14 months. [O/R]

(Graphic: U.S. stock futures- here)

Analysts have downgraded forecasts for Chinese and global growth, and policymakers from Asia, Europe and the United States have begun to prepare for a steeper economic downturn.

South Korean stocks shed another 1.05% on Thursday, closing at a four-month low, as it reported its largest daily rise in new virus cases since its first infection last month.

Unnerving investors further, the Bank of Korea kept interest rates unchanged on Thursday even though it downgraded its growth outlook.

With the infection rate in China slowing, the blue-chip CSI300 index finished up 0.3%. China’s central bank said on Thursday it would ensure ample liquidity to help limit the impact of the epidemic.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, taking it more than 4% lower for the week.

Taiwan raised its epidemic response level to the highest possible and Japan’s Nikkei dropped 2% to a four-month low amid more worries the Tokyo Olympic Games would be cancelled or shifted. [.T]

The safe-haven yen and the Swiss franc gained on Thursday with the Japanese currency heading towards 110 yen to the dollar, up nearly 2% so far this week. The dollar fell 0.32%.

That was enough to help drag the China-sensitive Aussie dollar up from an 11-year low and lend support to the euro. [FRX/]

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