China virus sends shiver through markets as risks mount
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[January 21, 2020]
By Ritvik Carvalho
LONDON (Reuters) - Global shares took a
beating on Tuesday, wiping out all gains made at the start of the week
as mounting concerns about a new strain of coronavirus in China sent a
ripple of risk aversion through markets.
Authorities in China confirmed that a new virus could be spread through
human contact, reporting 15 medical staff had been infected and a fourth
person had died.
Safe-haven bonds and the yen gained as investors were reminded of the
economic damage done by the SARS virus in 2002-2003, particularly given
the threat of contagion as hundreds of millions travel for the Lunar New
Year holidays.
"I'm not an expert in the pandemics, but you can look at previous
examples like the SARS outbreak which also originated from Asia," said
Cristian Maggio, Head of Emerging Markets Strategy at TD Securities in
London.
Noting that China had initially downplayed the full extent of the SARS
outbreak, he said "I think the market might be fearing something
similar."
The mood swing saw MSCI's All-Country World Index slip 0.4%, wiping out
gains made at the start of the week on Monday. Asian markets were hit
particularly hard.
Hong Kong, which suffered badly during the SARS outbreak, saw its index
fall 2.8%.
Japan's Nikkei lost 0.9% and Shanghai blue chips 1.7%, with airlines
under pressure. The caution spread to E-Mini futures for the S&P 500
which eased 0.5%.
The chill in Asia carried over to European markets, where shares of
luxury goods makers - which have large exposure to China - were among
the biggest fallers. [.EU]
Germany's 10-year government bond yield touched one-week lows. [GVD/EUR]
Investors had already been guarded after the International Monetary Fund
trimmed its global growth forecasts, mostly due to a surprisingly sharp
slowdown in India and other emerging markets.
There had been some relief as U.S. President Donald Trump and French
President Emmanuel Macron seemed to have struck a truce over a proposed
digital tax.
The two agreed to hold off on a potential tariffs war until the end of
the year, a French diplomatic source said.
Trump is due to deliver a speech at the World Economic Forum in Davos
later on Tuesday, and trade and tariffs could be on the agenda.
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The London Stock Exchange Group offices are seen in the City of
London, Britain, December 29, 2017. REUTERS/Toby Melville
In a tweet late on Monday, Trump said he would be bringing
"additional Hundreds of Billions of Dollars back to the United
States of America! We are now NUMBER ONE in the Universe, by FAR!!"
ALL STEADY AT BOJ
The Bank of Japan cited lessened trade risks when nudging up
forecasts for economic growth after holding a policy meeting on
Tuesday.
As widely expected, the BOJ maintained its short-term interest rate
target at -0.1% and a pledge to guide 10-year government bond yields
around 0%, by a 7-2 vote.
Japan's yen picked up a bid on the safe-haven move and the dollar
dipped to 109.93 from an early 110.17. It also gained on the euro,
leaving the single currency lower to the dollar at $1.1090.
Against a basket of currencies, the dollar was steady at 97.638,
just off a four-week high of 97.729.
The Australian dollar took a knock from the flu worries since it
attracts large numbers of Chinese tourists, who tend to be big
spenders over the Lunar New Year holidays.
Australia said it would step up screening of some flights from
Wuhan.
The outbreak was particularly badly timed as the tourism industry
has been mauled already by bushfires sweeping the country.
Spot gold hit a 2-week high of $1,568.35 per ounce, but traded 0.2%
lower in early deals in London.
Oil prices slid nearly 1%, having earlier gained on the risk of
supply disruption in Libya. [O/R]
Brent crude futures fell 1% to $64.60 a barrel, while U.S. crude
fell 0.92% to $58.09 a barrel.
(Reporting by Ritvik Carvalho; additional reporting by Marc Jones in
London and Wayne Cole in Sydney; Editing by Katya Golubkova)
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