Dow Tumbles Into 10% Correction As Futures Crash, 10Y Yields Plunge To Record Lows On Pandemic Panic

Market Snapshot

  • S&P 500 futures down 0.6% to 3,092.50
  • STOXX Europe 600 down 1.5% to 398.54
  • MXAP down 0.7% to 159.60
  • MXAPJ up 0.01% to 524.89
  • Nikkei down 2.1% to 21,948.23
  • Topix down 2.4% to 1,568.06
  • Hang Seng Index up 0.3% to 26,778.62
  • Shanghai Composite up 0.1% to 2,991.33
  • Sensex down 0.3% to 39,760.00
  • Australia S&P/ASX 200 down 0.8% to 6,657.90
  • Kospi down 1.1% to 2,054.89
  • German 10Y yield fell 0.9 bps to -0.514%
  • Euro up 0.5% to $1.0934
  • Italian 10Y yield rose 0.5 bps to 0.827%
  • Spanish 10Y yield rose 1.3 bps to 0.263%
  • Brent futures down 1.9% to $52.44/bbl
  • Gold spot up 0.3% to $1,645.04
  • U.S. Dollar Index down 0.2% to 98.78

Top Overnight News

  • More coronavirus cases were reported in countries other than China for the first time, the World Health Organization said, a significant development as new cases spread around the globe
  • Vast swathes of the Lombardy and Veneto regions of Italy, stretching from Milan to Venice, remained in a virtual lockdown. Spain kept about 700 guests confined to a Canary Islands hotel as they undergo tests, while France announced four new confirmed cases, including a 60-year-old Frenchman who died in a Paris hospital overnight. Greece reported its first case
  • The ongoing coronavirus epidemic is causing a significant challenge to U.S. businesses in China due to travel disruptions and reduced staff productivity, according to the results of a survey by the the American Chamber of Commerce
  • The rapid spread of the coronavirus has prompted the Bank of Japan to ask major banks about their readiness for a worsening of the outbreak, people with knowledge of the matter said
  • U.K. Prime Minister Boris Johnson told the European Union he’ll walk away from the negotiating table in June if it’s not clear he’s going to get a Canada-style free trade agreement for Britain. The U.K. is setting a tough timetable for the negotiations, saying it wants the broad outline of an agreement by June, so the deal can be finalized by September
  • Saudi Aramco is starting early preparations for an international listing, just months after the oil giant turned its record initial public offering into a domestic affair and sidelined global banks, people with knowledge of the matter said
  • There’s a good chance that U.K. companies will unleash spending this year with a double boost from an expansionary budget and more clarity over Brexit, according to Bank of England Chief Economist Andy Haldane
  • Norway’s sovereign wealth fund boosted its South Korean government debt holdings in 2019 to $5.6 billion from $5.1 billion in the previous year, according to data published on its website
  • Spain’s vicious start-and-stop cycle of bad jobs has become one of Europe’s most chronic economic dilemmas, a problem unresolved by its post-crisis boom

Asian equity markets traded mostly lower following a mixed Wall Street handover, as major indices faded gains heading into the latter part of the US session before the Dow and S&P dipped into negative territory – with the former’s losses tallying over 2000 points this week thus far. Furthermore, US equity futures trickled lower since reopen amid the rising virus cases outside China and with the first “community spread” reported in the States. ASX 200 (-0.8%) is mostly weighed on by its banking and base-metal miners, while some earnings-related movers were scattered across the index. Nikkei 225 (-2.1%) underperformed with downside led by manufacturing, automakers, and financials, whilst Panasonic shares slid over 4% after ending its solar partnership with Tesla. KOSPI (-0.7%) hit levels last seen in October last year as the index continued to be weighed on by the surging number of coronavirus cases in the country, alongside the surprise hold on rates by the BoK. Elsewhere, Hang Seng (+0.3%) joined the regional stock rout as the energy and entertainment names added further to the losses seen this week, whilst Shanghai Comp (+0.1%) showed resilience and bucked the trend despite yet another PBoC inaction, as the rate of virus deaths in the country eased, the rate new cases steadied, and with further pledges from China to cushion the virus impact and stem the contagion.

Top Asian News

  • China May Cut Deposit Rates So Battered Banks Can Keep Lending
  • Hong Kong Property Tycoon Peter Woo to Take Wheelock Private
  • South Korea Reports 505 More Coronavirus Cases, 1 Death Feb. 27

Once again, it’s been a tough start to the session for European equities (Eurostoxx 50 -2.3%, FTSE 100 -1.9% and now in correction territory) as market sentiment is dictated by incremental newsflow surrounding COVID-19. Focus continues to reside on developments external to China with the further selling pressure being brought about by multiple updates including the potential first “community spread” case in the US, the mounting case count in South Korea and government’s across the globe lifting their threat levels over the virus. Despite comments from the WHO that the coronavirus case count might have been inflated in Italy by testing errors, markets have not been able to stage anything close to a meaningful recovery. From a sector standpoint, as has been the case throughout the week, selling has been relatively broad-based with only utility names holding up marginally better than their peers following earnings from Engie (+4%). Travel names continue to remain the ugly duckling in Europe with recent- cost-cutting measures across the sector unable to stop the rot; Tui -6.3%, easyJet -7.5%, Lufthansa -7.5%, RyanAir -7%, IAG -8%. Elsewhere, it’s been a busy morning of corporate updates with WPP (-14%) at the foot of the Stoxx 600after a disappointing Q4 sales outturn, Belgian Heavyweight AB Inbev (-9.5%) are lower after warning on Q1 profits in the wake of COVID-19, whilst UK homebuilder Persimmon (-4.5%) lag peers after posting an annual decline in profits. To the upside, Carrefour (+3.5%) are firmer after announcing increased cost savings targets alongside earnings, Reckitt Benckiser (+2.5%) have reversed losses seen at the opening after taking a GBP 5bln impairment on Mead Johnson Nutrition and British American Tobacco (+1.5%) are showing mild gains after showing pretax profit and sales growth in its latest earnings update. Stateside, focus will be on Microsoft (-2.5% pre-market) after the Co. cut its Q3 personal computing segment revenue guidance due to coronavirus.

Top European News

  • Danske Bank Cuts Hundreds of Jobs in Effort to Rein In Costs
  • Reckitt Benckiser Takes $6.5 Billion Charge Over Formula Deal
  • Boris Johnson to Put U.K. on Collision Course With EU Over Trade
  • Norway’s Wealth Fund Returns Record $180 Billion in 2019

In FX, the Greenback has unwound all and more of its gains vs most G10 peers amidst ramped up Fed rate cut expectations on the ever-increasing spread of China’s COVID-19 epidemic to the point of pandemic proportions. The Buck’s retreat coincides with a marked rise in the number of suspected US cases and one confirmed in North Carolina from unknown origin that the CDC contends may constitute a community spread. In response, the DXY has reversed further below the 99.000 level to a 98.658 low and not far from Fib support at 98.550 that virtually coincides with another strong technical mark in the form of a late November 2019 high. Ahead, multiple US data releases and more Fed rhetoric, but for the time being it’s all about coronavirus and contagion.

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