Stocks Plunge As Virus Fears Grow

Markets are down heavily across the board this morning as investors seek safety due to a rise in coronavirus cases outside of China. Outside of Asia, we had seen markets almost carrying on with business as usual once the stimulus measures had been announced, however it is the spike in Italian cases which has caused concern the virus could now spread within Europe. The ‘out of sight out of mind’ approach clearly is no longer an option with the FTSE100 opening down 3.2%, Germany’s DAX down 3.8%. Worst hit, as may be expected, are travel companies. easyJet is down 11.9% and British Airway’s parent company IAG is down 7%.

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Across the pond US indices are pointing towards heavy losses at the open with the major three benchmarks down 2.6-3.3%, the Nasdaq indicating the largest drop. The resurgent fears of coronavirus follow on from some lacklustre data on Friday showing both services and manufacturing activity in the US contracted for the first time since 2016. Both of these factors could see fresh calls for more rate cuts later in the year. Some of the largest US companies are set to fall on the open with early indications seeing Tesla down 3.8%, Amazon down 4% and Apple 4.6% lower.

Gold has been the beneficiary from the equities sell-off, spiking 2.5% to trade at the highest level since January 2013. Unusually up until the last few days we had seen gold rise along with the dollar and equity markets. The question now is whether or not this is the start of a wider shift in sentiment or if positive updates regarding containment of the virus could see these moves reverse. Incidentally, the new cases in China’s worst hit province are the lowest recorded in a month.

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Negative week for major indices

After the heavy selloff on Friday, including a 1.8% drop for the Nasdaq Composite, all three major US indices ended the week in the red despite hitting record highs midweek. At the same time, gold crossed $1,600 an ounce to mark a seven-year high as investors looked for safe havens, and US crude oil prices ticked upwards. Chipmakers Advanced Micro Devices (AMD) and Nvidia (NVDA) weighed on the Nasdaq Composite (COMP), falling 7% and 4.7%. On Thursday, analysts at Wells Fargo downgraded their rating on AMD stock, suggesting that its 100% plus rally over the past 12 months was overdone. The week also contained various signals for how the coronavirus epidemic is hitting companies, including Apple’s shock update early in the week that it would miss its sales forecasts. Investment firm T. Rowe Price (TROW) said in a note on Friday that New York-listed auto parts company Aptiv warned that the outbreak would weigh on its revenue more than anticipated. T. Rowe Price traders noted that investors are concerned that this week was the “tip of the iceberg” in earnings downgrades. Farm machinery manufacturer Deere & Co was at the top of the S&P 500 on Friday, climbing 7% after reporting a positive set of Q4 earnings, which CEO John May said reflected “early signs of stabilization in the US farm sector”.

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