Markets braced for more volatility on Monday, with investors unnerved by the growing possibility of a coronavirus pandemic. Last week, investors bolted risk-sensitive assets in favor of safe haven assets, including gold and Treasuries.
11:00 a.m. ET: Stocks pull off troughs, still sharply lower
Wall Street has clawed off session lows, but indexes remain well underwater as traders aggressively price in a worsening of the coronavirus outbreak. Here’s where major benchmarks are currently:
S&P 500 (^GSPC): -2.69% or -89.92 points to 3,247.83
Dow (^DJI): -2.79%, or -808.98 points to 28,183.43
Nasdaq (^IXIC): -3.31% or -316.59 points to 9,260.00
Crude oil (CL=F): -4.40% to $51.03 a barrel
Gold (GC=F): +1.77% to $1,678 per ounce
10:50 a.m. ET: Italy, already reeling, takes new blow from virus outbreak
Via Reuters, Italy — a G7 economy that’s seen sluggish (if nonexistent) growth for much of the last decade, is all but certain to take another hit from the coronavirus’ appearance there. Over 220 people have been infected since Friday with six dead.
The euro zone’s third-largest economy has been the most sluggish in the 19-nation bloc since the start of monetary union. It shrank by 9% in the wake of the 2008 global financial crisis and has recovered only about half of that since then.
Italian GDP fell by 0.3% in the fourth quarter of last year from the previous three months, yielding full-year growth of just 0.2%. Economists expected it to fare little better this year — and that was before the coronavirus hit.
10:15 a.m. ET: WHO on coronavirus pandemic: ‘Not yet’
In its daily update, the World Health Organization’s director general made a distinction between the coronavirus being a contagious epidemic and a full-fledged pandemic:
“Our decision about whether to use the word “pandemic” to describe an epidemic is based on an ongoing assessment of the geographical spread of the virus, the severity of disease it causes and the impact it has on the whole of society.
“For the moment, we are not witnessing the uncontained global spread of this #coronavirus, and we are not witnessing large-scale severe disease or death. Does this virus have pandemic potential? Absolutely. Are we there yet? From our assessment not yet.”
Meanwhile, The White House may seek up to $1 billion to prevent the virus from worsening in the United States.
10:14 a.m. ET: How the coronavirus will affect the global economy
Goldman Sachs took a knife to its U.S. estimates, shaving 0.2 percentage points off estimated Q1 GDP given the widening coronavirus outbreak. The bank warns that “risks are clearly skewed to the downside” in light of supply chain troubles, and will be felt in the following four ways:
The impact of the coronavirus on US growth is likely to come from four main channels, namely 1) reduced US goods exports to China, 2) reduced spending in the US by Chinese tourists and students, 3) a decline in US retailers’ services value added through lower US consumption of imported goods, and 4) a decline in US production due to supply chain production disruptions. The first two channels reduce output through lowering demand, while the latter two channels reduce output through a reduction in supply.
In a separate note, Goldman cited evidence that suggested the virus’s spread “is likely having a somewhat gradual but still sizeable impact on macro data.”
9:50 a.m. ET: Expect cheaper energy prices until 2025: BofA
The upside of the coronavirus crisis will be sharply lower energy prices, with the hit to global demand expected to keep crude depressed, according to Bank of America. In a research note to clients on Monday, analysts said they expect Brent to range-trade between $50 and $70 until 2025:
As prices become more anchored around $60, we believe volatility implied in oil options could trend lower in the medium term. In contrast to last year, we see more support to our price outlook on increased capital discipline across the US shale industry, despite coronavirus risks. Our projections assume OPEC+ is prepared to continue to lose share in the global oil market, particularly if pandemic risks rise again.
More broadly, we expect oil as a share of the global energy pie to will drop as well as the petroleum consumption mix keeps rotating away from gasoline and heavy ends into distillates and NGLs (natural gas liquids).
The bank also expects the oil market to need additional production cuts this year amid “modest” demand that will keep Brent averaging $62 per barrel in 2020.
9:30 a.m. ET: Wall Street plunges at the opening bell
The escalating coronavirus crisis is taking a huge toll on financial markets. The bloodletting that started on Sunday with stock futures and continued through Asia and European session has now hit U.S. blue-chip and tech stocks. Some of the day’s biggest losers include bellwether names like Apple, Google and Tesla — all of which fell by around 5% on the day.
Here’s where the markets began Monday’s trading session, which is shaping up to be an ugly one:
S&P 500 (^GSPC): -3% or -100 points to 3,237.52
Dow (^DJI): -3.2% or -918.19 points to 28,074.13
Nasdaq (^IXIC): -3.52% or -336.76 points to 9,245.73
Crude oil (CL=F): -4.72% to $50.86 a barrel
Gold (GC=F): +2.18% to $1,684.70 per ounce
Analysts, however, don’t think the current drop will last. Invesco’s Brian Levitt told Yahoo Finance on Monday that the current scare is little more than a blip in a longer secular bull that won’t trigger a recession. “We will be back sometime later in this year talking about stabilizing economic activity.”
7:30 a.m. ET: Stock futures slump in early trading
Here’s were the main moves during the pre-market session, as of 7:30 a.m. ET:
S&P 500 futures (ES=F): 3,265.00, down 74.25 points or 2.22%
Dow futures (YM=F): 28,293, down 688.00 points or 2.37%
Nasdaq futures (NQ=F): 9,222.25, down 235.75 points or 2.49%
Crude oil (CL=F): $51.39 per barrel, down $1.99 or 3.73%
Gold (GC=F): $1,682.50 per ounce, up $33.70 or 2.04%
An unexpected surge in confirmed infections within South Korea and Italy — which now has the largest cluster of cases outside of China — raised the possibility that the mystery virus could be mutating into a pandemic. Last week, the Hubei province at the epicenter of the coronavirus outbreak revised its method of counting cases for the third time this month, further undermining confidence in the country’s official counts.
It raises the stakes for the entire global economy rather than just China, where the overwhelming majority of the world’s nearly 80,000 cases are located. According to Marc Chandler at Bannockburn Global Forex:
The [coronavirus] has not only crippled the Chinese economy, but its sheer size and magnitude of its integration in the global supply chains have far-reaching knock-on effects. Asia-Pacific economies that were increasingly reliant on Chinese input and demand are the most vulnerable. Estimates suggest that the world’s second-largest economy is operating well less than 50% of capacity.
Indeed, the extension of the stoppages and disruptions increase the likelihood that the Chinese economy contracts in Q1 [and] The supply chain disruptions are adversely impacting Japanese and Korean automakers. German automakers derived a substantial share of their profits from China, and car sales continue to weaken.
The virus is sending ripples across the global supply chain, with names like Volkswagen, Burberry, Starbucks and Apple among the growing list of multinationals whose operations are being adversely impacted by the outbreak.