LDN - Business

Shares struggle for footing after virus-battered week

[January 31, 2020] By Marc Jones

LONDON (Reuters) - World shares were heading for their biggest weekly losses since August on Friday and oil and metals markets were showing even more brutal damage, as investors worried over the fallout from China's coronavirus epidemic.

A modestly positive start from Europe quickly soured as headlines of more cases and deaths, travel bans and factory shutdowns due to the virus were compounded further by disappointedly weak economic data.

The big blow was that both France and Italy's economies unexpectedly shrank at the end of last year, with Eurostat also confirming that the euro zone as a whole grew slower than analysts had forecast.

That pushed Paris and Milan down by 0.6% and 1.4% respectively. London and Frankfurt dropped 0.8% and 0.4% and with Wall Street pointing to similar falls later too [.N] the weekly global wipeout was already around $1 trillion.

"The coronavirus is outweighing everything else," said Francesca Fornasari, head of currency solutions at Insight Investments.

"We have seen quite a position unwind and ... whatever is coming out in terms of data is for the period when the virus hadn't become quite such a big issue."

The virus, which is centered on China, has spread to more than 20 other countries and regions. As of Friday China had reported 213 deaths and 9,800 cases, with number of people infected surpassing the total during the 2002-2003 SARS epidemic.

Britain reported its first two cases of the illness on Friday. The United States and other countries tightened their travel curbs and businesses said they were facing supply problems from China.

Asia-Pacific shares outside Japan extended their fall, dropping 0.4%, and appeared set for their worst weekly loss in a year, of 4.6%. Thursday's 2.3% dive was the sharpest one-day loss in six months.

Japan's Nikkei bounced 1%, but was off 2.6% for the week. Hong Kong's Hang Seng drifted 0.3% lower and has shed 9% in two weeks. Korea's Kospi had its worst week in 15 months, losing 5.6%.

Graphic: Coronavirus wipes more than $1 trillion off world stocks - https://fingfx.thomsonreuters.com/
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WALL STREET SET TO SLIP

Wall Street's S&P 500 futures were down 0.5% ahead of the New York restart having been briefly higher overnight.

That was given a boost when Amazon's sales blew past forecasts and sent its stock soaring 11% after hours, adding over $100 billion in market value.

Surveys showing Chinese manufacturing activity then came in much as expected in January while services actually firmed, though this was likely before the virus took full hold.

Indeed, reports that some Chinese provinces were asking companies not to re-start until Feb. 10 - extending the Lunar New Year holiday - suggested activity would take a hard knock this month.

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The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

More airlines curtailed flights into and out of China and companies temporarily closed operations, while the United States advised citizens not to travel to China.

JPMorgan shaved its forecast for global growth by 0.3% points for this quarter.

"Based on the patterns observed from other epidemics, we assume that the outbreak will likely run its course over 2-3 months, meaning the hit to activity happens in the current quarter," JPMorgan analysts said in a note.

"Also in line with historical experience, we expect a full recovery to follow."

STERLING RISING

Safe-haven bonds were well bid, with yields on U.S. 10-year Treasuries down 9 basis points for the week so far and near four-month lows.

The yield curve between three-month bills and 10-year notes has inverted twice this week, a bearish economic signal.

In currencies, sterling extended gains after jumping on Thursday when the Bank of England confounded market expectations by not getting anywhere near an interest rate cut.

The pound was last up 0.3% at $1.3119, a relatively perky performance given that Friday is the day the UK officially leaves the European Union after years of political turmoil.

The dollar was still flat after data the previous day showed the U.S. economy had grown at its slowest annual pace in three years and personal consumption weakened sharply.

It barely budged from 109 yen and $1.1040 to the euro on Friday. Yet for January it is up 1.5% when measured against a basket of top world currencies.

Most of the action this week has been nervous investors selling emerging currencies for dollars and yen, leaving the majors little changed against each other.

Spot gold was only just up for the week at $1,573.72 per ounce, having failed to get much of a safe-haven bid as a range of other commodities, from copper to soy beans, were hammered by worries over Chinese demand.

Oil bounced on short covering, after hitting its lowest in three months as the coronavirus spread threatened to curb demand for fuel.

U.S. crude regained 29 cents to $52.43 a barrel, while Brent crude futures rose 22 cents to $58.51.

Oil is down almost 10% on the month despite a spike at the start of the month caused by the U.S. killing of Iran's top military commander.

Graphic: Markets tumble on coronavirus worries - https://fingfx.thomsonreuters.com/
gfx/mkt/13/1638/1613/Pasted%20Image.jpg

(Additional reporting by Sujata Rao in London; Editing by Kevin Liffey and Frances Kerry)

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