Stocks Slammed And Yields Drop As Virus Containment Fails

Overview: The ring of containment of Covid-19 has grown from China. The new frontline is Japan, South Korea, Italy, and Iran. A lockdown of around 50k people near Milan and Austria blocking trains from Italy is scaring investors. Asian markets fell, but South Korea bore the brunt with a nearly 4% decline. The national holiday in Japan spared local equities. Europe's Dow Jones Stoxx 600 was marked sharply lower at the open and trended lower throughout the morning. The record high was reached on February 19 (~434) and is now approaching the year's low set on January 10 (~410). It is off about 3.7%. US shares are also selling off, and the early indication is for around 2.5% gap lower opening of the S&P 500. Bond yields are also falling. Asia-Pacific yields were off 2-4 bp, while core European bond yields are 5-7 bp lower, and the US 10-year yield is off around eight basis points to dip below 1.40%. The US 30-year yield is about seven basis points lower at a new record low near 1.84%. The major currencies fall into four buckets today. The yen, which some feared was losing its safe-haven status, is the only currency gaining against the dollar tody (~0.25%). The euro, Swiss franc, and Danish krone are off about 0.3%. The dollar-bloc and Swedish krona are off about 0.6%, and the Norwegian krone is off around 1%. Emerging market currencies are under pressure the JP Morgan Emerging Market Currency Index is 0.5% lower, with the Mexican peso and South Korean won leading with approximately 1% losses. Gold has soared more than 2% to $1680-$1690, and April WTI is off about 3.5% to $51.50.  

Asia Pacific

China added to the confusion by announcing the easing of the travel ban for Wuhan, where the virus initially emerged, only to rescinded it within hours. Apparently, it did not have senior leadership approval, and the lockdown of the 1l mln or so residents remains in place. Meanwhile, other reports suggest that Beijing is pushing to resume economic activity as soon as possible, and this is leading to other concerns that it may be premature. At the same time, the virus does not yet appear contained. 

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Read more by Marc on his site Marc to Market.

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