Shares, oil slide as China virus fears intensify; yen, Treasuries in demand

Reuters TOKYO | Updated on January 27, 2020

Stocks tumbled on Monday as investors grew increasingly anxious about the economic impact of China's spreading virus outbreak, with demand spiking for safe-haven assets such as the Japanese yen and Treasury notes.

Japan's Nikkei average suffered a steep 1.8 per cent loss, on track for the biggest one-day fall in three weeks. US S&P 500 mini futures was last down 0.9 per cent, having fallen 1.3 per cent in early Asian trade. “All you see is headlines about the coronavirus, giving investors a reason to sell the markets,” said Takeo Kamai, head of executions services at CLSA in Tokyo.

The ability of the coronavirus to spread is getting stronger and infections could continue to rise, China's National Health Commission said on Sunday, with more than 2,700 people globally infected and 80 in China killed by the disease.

China announced it will extend the week-long Lunar New Year holiday by three days to Feb. 2 and schools will return from their break later than usual. Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei province in the past 14 days.

Market participants kept a wary eye on developments around the virus, which the World Health Organisation (WHO) last week deemed “an emergency in China,” but not, as yet, for the rest of the world.

MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.2 per cent, although trade in the region has already slowed for the Lunar New Year and other holidays, with financial markets in China, Hong Kong and Australia closed on Monday.

All three major Wall Street indexes closed sharply lower on Friday, with the S&P 500 seeing its biggest one-day percentage drop in over three months. The S&P 500 lost 0.9 per cent, the Dow Jones Industrial Average fell 0.6 per cent and the Nasdaq Composite shed 0.9 per cent after the Centers for Disease Control and Prevention confirmed a second case of the virus on US soil.

US Treasury prices advanced, pushing down yields further, with the benchmark 10-year notes dropping to a 3-1/2-month trough of 1.627 per cent in early Asian trade.

Yen trades higher

In the currency market, the concerns about the virus supported the yen, often perceived as a safe haven because of Japan's net creditor status. The Japanese currency strengthened as much as 0.5 per cent to 108.73 yen per dollar, its 2-1/2-week high.

The euro last stood at $1.1033 versus the dollar, having fallen to its eight-week low of $1.1019 on Friday.

The offshore yuan dropped more than 0.3 per cent to 6.9625 against the dollar, its weakest level since January 8.

The heightened fears of the economic impact of the coronavirus also pressured oil and other commodity prices, except safe-haven gold. US West Texas Intermediate (WTI) crude futures plummeted more than 3 per cent to hit a three and a half month low of $52.15 in early trade.

“Investors will react quickly to any sign of negativity and this is no exception as China announces that the issue has become an emergency. This could keep oil prices fragile until the coronavirus shows signs of slowing down,” said Mihir Kapadia, chief executive at Sun Global Investments.

Published on January 27, 2020

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