U.S. Stocks Sink as Coronavirus Cases Mount Outside of Asia

Date : 02/24/2020 @ 3:33PM
Source : Dow Jones News

U.S. Stocks Sink as Coronavirus Cases Mount Outside of Asia

By Chong Koh Ping, Anna Isaac and Caitlin McCabe 

Global stocks and oil prices fell sharply Monday, spurred by the emergence of fresh coronavirus outbreaks in several countries outside of China.

The Dow Jones Industrial Average tumbled more than 800 points, or 2.8%, shortly after the U.S. market opened, on track for a third consecutive session of losses. The drop sets the blue-chip index on track for its biggest decline in six months.

The S&P 500 also declined 90 points, or 2.7%, with all 11 sectors posting declines. The tech-heavy Nasdaq Composite fell the furthest, dropping 3.2%.

Investors stepped up their flight to haven assets, pushing gold prices up 1.7% to $1,678 a troy ounce. Increased demand for U.S. Treasurys sent yields, which move inversely to prices, on the 10-year note down to 1.37%, from 1.644% Friday.

"The rally of haven assets such as gold reflects surging demand for safety during a time of uncertainty. Things will probably get worse before it gets better," said CMC Markets analyst Margaret Yang.

Meanwhile, Brent crude dropped 4.5% to $55.34 a barrel. Oil prices have declined in recent weeks on investors' concerns that the viral outbreak would sap demand for crude. Saudi Arabia is also considering a break from its four-year oil-production alliance with Russia, The Wall Street Journal reported Friday.

After weeks of fresh records in U.S. indexes, market gains started to unravel last week, as it became increasingly clear that the coronavirus outbreak will disrupt global supply chains more than originally anticipated. Those concerns worsened over the weekend after a surge of cases were reported in South Korea, Iran, and Italy.

The Cboe Volatility Index, or VIX, jumped to 23.92 in early trading, on track to close at its highest level since early August. The options-based gauge tends to rise when markets fall and investors reach for insurance-like contracts to protect their portfolios. Near-dated futures contracts tracking the index also jumped above those expiring in later months, a sign that many investors are bracing for more volatility.

The Stoxx Europe 600 index retreated 3.9%. The main equity gauge in Italy, which has the biggest coronavirus outbreak outside Asia, fell 4.7%. Germany's DAX, the benchmark for Europe's industrial powerhouse, also tumbled 3.9%.

The Group of 20 major economies warned Sunday that viral outbreak poses a serious risk to the global economy as new cases flared outside of China, prompting concerns about dangerous new pockets of infection in places as far as Iran and Italy.

The contagion, which has curtailed Chinese manufacturing, exports and consumption this year, is threatening to dampen global growth as factories world-wide depend on a supply chain tethered to China for many intermediate and finished goods. Officials and economists are warning that an extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output.

"Not only are Chinese industrial hubs in lockdown, and derailing global supply chains, you now have the virus spreading very close to industrial hubs in Europe," said Florian Hense, European economist at Berenberg Bank.

In Italy, more than 50,000 people weren't allowed to leave their towns under a quarantine in effect Sunday. The outbreak's epicenter within the country is just miles from Milan, the engine of Italy's economy, and led to trade shows, soccer matches and other public events being canceled.

"Northern Italy, Switzerland, Southern Germany, and Austria form a big supranational industrial hub," Mr. Hense said. "Should a lockdown in small areas of Italy be widened, there would be far more significant disruption for manufactures like German car makers in Europe."

Airlines and travel-related stocks were hit particularly hard. American Airlines dropped 8.5%, while British Airways parent company International Consolidated Airlines fell 8.6%.

In South Korea, which reported its seventh death from the coronavirus, the benchmark Korea Composite Stock Price Index, or Kospi, closed down 3.9%. That was its biggest one-day fall since 2018, according to FactSet. South Korea on Sunday raised its infectious-disease alert to red -- the highest level -- for the first time since the H1N1 swine flu outbreak in 2009.

"This could serve as a 'wake-up' call for Japan and other Asian economies, which are vulnerable against the impact of the virus," said Ms. Yang. "This will also put the hosting of Tokyo Summer Olympic Games under scrutiny, as Japan now has the highest number of infections outside of China alongside an aging population."

Elsewhere in Asia, stock benchmarks in Hong Kong and Singapore fell 1.8% and 1.2%, respectively. In Australia the S&P/ASX 200 index declined 2.3%. Markets in Japan were closed Monday.

Write to Anna Isaac at anna.isaac@wsj.com


(END) Dow Jones Newswires

February 24, 2020 10:18 ET (15:18 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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