Australian shares are poised to drop sharply for a second session, in line with a widening global sell-off, which at one point knocked the Dow Jones more than 1000 points lower.

ASX futures were down 145 points or 2.1% to 6784 near 7am AEDT; they earlier tumbled more than 180 points. The local currency was 0.4% lower and was hovering slightly above US66¢; it earlier plunged as low as US65.85¢.

“Does this virus have pandemic potential? Absolutely, it has,” WHO Director-General Tedros Adhanom Ghebreyesus told a news conference in . “Are we there yet? From our assessment, not yet.”

The latest WHO figures: global confirmed cases are 79,331. Of that 97.4% were in China at 77,262. The number of people who’ve died from the virus in China is now 2595.

As for outside of China, the WHO said there are now 2069 confirmed cases, across 29 countries with 23 deaths. Among the countries with the highest number of confirmed cases: South Korea (763), Japan (144) and Italy (132). There were 35 in the US and 22 in Australia.

In a tweet, Allianz’s Mohamed El-Erian said: “#CoronaVirus shock is a test of the technicals (FOMO/Buy-The-Dip conditioning) that helped #stocks overcome fundamentals/valuations headwinds. A key element is whether #markets distinguish between #CentralBanks‘ willingness (high) and ability (low) to counter the economic shock.”

Equities crashed in Europe and on Wall Street. Investors shifted into US government bonds and gold, which has $US1700 in sight.

Oil plunged more than 5%. Iron ore was relatively steady as were base metals.

Among the biggest equity market moves as of 7am AEDT (3pm New York):

  • the Dow was 823 points lower
  • the Dow fell as much as 1079 points about 1.15pm
  • the S&P 500 shed 2.9%; the Nasdaq fell 2.8%
  • the Stoxx 600 ended down 4%, the FTSE 100 fell 3.3%

Some of the biggest names that have paced the US market’s fast start to 2020 were among the biggest losers: -6.3%; Facebook -4.3%; Alphabet -3.8%; -3.7%; Apple -3.5%; and, Microsoft -2.8%.

It was a rough session for BHP and Rio in New York: Rio’s US listed shares plunged 5.9% while BHP’s were 4.9% lower with less than an hour of trading left in the day.

“Although the fear over the pandemic is real, and the potential slowdown in the global economy could hurt 2020 corporate profits, let’s not forget that big down days are part of what long-term investors have had to accept,” LPL Financial senior market strategist Ryan Detrick said.

An average year has more than five separate days with at least a 2% correction for the S&P 500, Mr Detrick also said, noting that even last year, with stocks up 30%, there were five separate days that saw the S&P 500 close down at least 2%.

The yield on the US 10-year note plunged 10 basis points to 1.38%; the 30-year dropped to 1.83%.

The yield move reflected in part a repositioning for an interest rate cut by the US Federal Reserve: “Fed funds futures now pricing in greater than 50% chance of a rate cut by the April 29th meeting,” Bespoke Investment tweeted.

Capital Economics’ Jonas Goltermann said his forecasts for equities and bonds are being challenged.

“The likelihood that the coronavirus will take a greater toll on China’s economy and spread more widely around the world than we had initially assumed suggests that there are downside risks to our current forecasts for equities and bond yields.”

In an analysis, Oxford Economics said a coronavirus pandemic could cut world GDP by $US1 trillion with US and eurozone recessions.

Within China, Oxford said it expects “the outbreak will cut growth to just 3.8% y/y in Q1, but with a rebound in Q2 and Q3. For 2020 as a whole, we expect China’s growth to be cut to 5.4%, down 0.6 percentage points versus our pre-outbreak forecast in December”.

Oxford also examined two more severe downside scenarios where the coronavirus outbreak morphs into a pandemic. In the first, it analysed the implications of a pandemic limited to Asia, and in the second, it considered the impact of a global pandemic.

“If the outbreak should develop into an Asian pandemic, our modelling of this scenario shows that growth in the Asia Pacific region would slump from around 4% y/y at end-2019 to just 1.5% y/y in H1 2020 – the slowest since the global financial crisis. China’s growth would plunge to just 2.6% y/y in Q1 2020, the weakest rate in at least 30 years.”

If the virus becomes a global pandemic, “we find larger effects as the infection spreads worldwide. In the first half of 2020 we find that global GDP growth would fall to nearly zero. For the full-year 2020, global GDP would be $1.1 trillion, or 1.3%, below our present forecast baseline.

“In the world’s advanced economies, our global pandemic scenario shows that the US and eurozone would enter technical recessions in the first half of 2020. Again, however, we find this would be followed by a rapid recovery so that such a worldwide pandemic inflicts a short, but very sharp, shock on the world economy.”

Today’s agenda

No local data

Overseas data: US FHFA house prices December, S&P CoreLogic house prices December, Consumer confidence index February, Richmond Fed index February

Market highlights

ASX futures down 145 points or 2.1% to 6784 near 7am AEDT

  • AUD -0.4% to 66.04 US cents (Day range: 65.85 to 66.30)
  • On Wall St about 3pm: Dow -2.7% S&P 500 -2.9% Nasdaq -2.8%
  • In New York: BHP -4.9% Rio -5.9% Atlassian +0.3%
  • In Europe: Stoxx 50 -4% FTSE -3.3% CAC -3.9% DAX -4%
  • Nikkei 225 futures -0.6% Hang Seng futures -0.7%
  • Spot gold +2% to $US1675.50 /oz at 1.25pm New York
  • Brent crude -5.6% to $US55.21 a barrel
  • US oil -5.4% to $US50.49 a barrel
  • Iron ore -0.4% to $US91.88 a tonne
  • Dalian iron ore +0.6% to 674 yuan
  • LME aluminium -0.9 per cent to $US1699 a tonne
  • LME copper -1.3 per cent to $US5689 a tonne
  • 2-year yield: US 1.26% Australia 0.65%
  • 5-year yield: US 1.21% Australia 0.65%
  • 10-year yield: US 1.38% Australia 0.91% -0.48%
  • 10-year US/Australia yield gap: 47 basis points

From today’s Financial Review

Pandemic plan as virus spreads: The coronavirus situation shows little sign of ending with the considering extending travel bans beyond China.

Why investors are redoing their virus numbers: Investors are becoming increasingly nervous about the ability of central banks to protect them from the economic ravages of the coronavirus. It will be up to governments to come up with targeted fiscal policies.

Chanticleer: Dreamworld’s missing accountability: The tragic death of four people at Dreamworld exposed a slack safety culture which the coroner says can be sheeted home to the board of directors. But there is little in-depth explanation of how this occurred.

The market catches a case of coronavirus: It’s risk off. Suddenly global markets are reassessing the impact of the coronavirus.

United States

US Treasury Secretary Steven Mnuchin told Reuters he does not expect the coronavirus outbreak to have a material impact on the Phase 1 US-China trade deal, although that could change as more data becomes available in coming weeks.

Mnuchin acknowledged the outbreak could also delay the start of negotiations on deepening the trade deal with Beijing and reaching a Phase 2 agreement, but said he was not worried about that at this point.

“If we get the right deal before the election, that’s great. If we get the right deal after the election, that’s great. We don’t feel any pressure one way or another,” he said, referring to the November 3 US presidential election, in which Donald Trump is seeking reelection.

Europe

A rush of coronavirus cases outside China wiped nearly $US474 billion ($716 billion) off the value of European stock markets on Monday, as investors reassessed the likely impact of the outbreak turning into a pandemic.

London’s FTSE 100 recorded its worst one-day performance in more than four-and-a-half years, in a fall that wiped $US65 billion off companies’ market value.

The FTSE 100 fell 3.3 per cent, tracking declines across the world, as sharp rises in new cases in Iran, Italy and South Korea raised concerns about a bigger hit to the world economy than previously feared.

A 5.4 per cent slump saw Milan shares marking their worst day since mid-2016, as Italy reported the biggest flare-up of the virus in Europe with at least six deaths and more than 200 infections, which is likely to further upset the country’s already ailing economy.

Asia

Hong Kong stocks fell the most in four weeks on Monday, as a spike in coronavirus infections and deaths beyond mainland China eclipsed Beijing’s assurance to step up efforts to help cushion the blow to its economy.

The Hang Seng index fell 1.8%, to 26,820.88, while the China Enterprises Index lost 2.1%, to 10,568.33.

The blue-chip CSI300 index fell 0.4% to 4132.84, while the Shanghai Composite Index dipped 0.3% to 3031.23 points.

Currencies

TD Securities on the FX market: “With virus containment efforts (inevitably) failing, the epicenter of FX market concerns may now shift more conclusively to Europe. With the region’s economy already fragile, we think investors could become highly sensitive to concerns of further disruptions to global supply chains and aggregate demand. Within this, the SEK stands out as particularly exposed here, while JPY’s surprising bout of weakness last week looks wrong to us. We have sold SEKJPY as our Trade of the Week.”

US fed fund futures signalled more rate cuts later this year and a near 20% chance of a cut next month.

The Japanese yen strengthened 1.02% to 110.46 per dollar. The dollar index fell 0.236%, with the euro up 0.17% to $US1.0861.

“Ultimately this is all a risk-off trade,” said Marvin Loh, senior global markets strategist at .

“When you look at the yen, when you look at the Swissie, when you look at rates, it is risk-off. It’s probably reflective, to a certain degree, of the market being a little too sanguine up until now … so there’s an adjustment process around it.”

Korea’s won was down 1% at 1219.06 after falling to its weakest since August 2019. Emerging-market currencies, from Mexico’s peso and Turkey’s lira to Poland’s zloty and Russia’s ruble, were all in the red.

Commodities

Oil slumps 5pc on demand concerns as coronavirus spreads

Gold surges to 7-year peak amid safe-haven rush

Zinc hardest hit as metals retreat on fears of virus spread

ATO probes Rio Tinto aluminium: Alcoa is not the only Australian aluminium producer being investigated for transfer pricing, with the ATO reviewing at least one Rio Tinto smelter.

Fraud, bribery claims rock coal mining: Executives at coal miner Terracom, a company chaired by Wal King, allegedly ordered a staffer to alter the analysis of its coal to inflate its quality. The staffer claims in court documents that he was sacked when he refused.

Three-month zinc was the hardest hit on the London Metal Exchange (LME), sliding 3.3 per cent to $US2046 a tonne in final open-outcry trading, its weakest level since late June 2016.

Rising supply also weighed on zinc prices with inventories surging recently. LME levels have jumped 52 per cent over the past three weeks and those in warehouses tracked by the Shanghai Futures Exchange hit a near two-year high of 143,164 tonnes on Friday.

LME aluminium fell 0.9 per cent to $US1699, the lowest since February 5.

The outbreak of the deadly coronavirus could not have come at a worse time for the aluminium market, says columnist Andy Home.

“Stainless steel mills have started to reduce production due to transportation bottlenecks for raw materials and mounting inventory pressure,” Citi said in a note.

Stainless steel is the biggest end user of nickel.

LME copper shed 1.3 per cent to $US5689 a tonne after touching a two-week low of $US5671.50 while nickel slipped 0.8 per cent to $US12,430, the weakest since July last year.

Australian sharemarket

Shaky start for new tech index as star names plummet: The ASX’s All Tech Index was down more than 4 per cent on its first day, with the loss led by Audinate, EML Payments, Rebubble, Xero and Afterpay.

ASX drops 2.3pc in worst one-day fall since August: The Australian stockmarket tumbled on Monday to its worst session since August, with investors taking fright as the coronavirus spread to Italy.

The S&P/ASX 200 fell 2.25 per cent, or 160.66 points, to 6978.30. That was the biggest one-day loss for the market since August 15 when the benchmark fell 2.9 per cent, or 187 points.

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