Dow Futures Plunge, Global Stocks Slump as Coronavirus Spread Accelerates

Risk markets around the world were in retreat Monday, with safe-haven assets rising fast, as investors react to both the human and economic cost of the spread of the deadly coronavirus, which has taken the lives of 81 people and has been detected in at least ten countries around the world.

The Monday Market Minute

  • Global stocks retreat as investors count both the human and economic cost of the spread of the deadly coronoavirus in Asia and around the world.
  • China confirms 81 deaths and 2,700 cases of the virus, but warns its incubation period could be as long as 14 days, complicating efforts to screen and detect those who may be potentially carrying the virus.
  • European stocks open firmly to the downside as China extends Lunar New Year holiday by three days, until February 2, with basic resource, airline and luxury good stocks deeply in the red.
  • Oil extends declines, taking crude prices to the lowest levels in three months, as investors re-set demand forecasts as China's industrial complex buckles from business closures and travel restrictions.
  • U.S. equity futures suggest sharp opening bell declines on Wall Street ahead of the busiest earnings week of the year, with more than 140 companies expected to publish quarterly earnings over the next five days, including Apple, Microsoft, Facebook and Amazon.

U.S. equity futures suggest sharp losses on Wall Street Monday as markets around the world react to both the human and economic costs of the accelerating spread of the deadly coronavirus, which has killed more than 80 people and looks to have expanded to at least ten different countries. 

China's National Health Commission has confirmed more than 2,700 cases of the deadly disease, which triggers pneumonia-like symptoms, but cautioned that its incubation period could be as long as 14 days, creating a new challenge for authorities around the world attempting to screen visitors from China who might be carrying the virus.

Beijing said it will extend its Lunar New Year period until February 2, with schools and businesses in some cities expected to open a few days after that, in an effort to contain the spread, while Hong Kong as banned inward travel for residents of Huebi Provence, where the outbreak began in the central industrial city of Wuhan.  

The outbreak of the coronavirus could drive large swings in the Mainland China/EM Asia growth profile in H1 but a much smaller impact on full-year growth, if the SARS episode is any guide," JPMorgan said in a Monday client note. "We haven’t made any changes yet given this fluid situation, but revisions would likely reflect a reshuffle between H1 and H2 rather than a full-year downgrade."

Still, the potential knock-on effect for both the nation's economy, as well as trade with is regional partners, hit stocks hard overnight and triggered a rally in safe-haven assets around the world heading into a busy earnings week on Wall Street. 

Futures contracts tied to the Dow Jones Industrial Average were indicating a 430 point opening in early European trading, while those linked to the S&P 500 were suggesting a 45 point retreat for the broader benchmark. Nasdaq Composite futures are indicating a 180 point slide for the tech-focused index.

The weakness in U.S. stocks comes just ahead of the busiest earnings week of the reporting season, with more than 140 companies expected to publish fourth quarter updates over the next five days, including tech giants Apple  (AAPL) - Get Report, Microsoft  (MSFT) - Get Report, Facebook  (FB) - Get Report and Amazon  (AMZN) - Get Report.

Thus far, with around 85 S&P 500 companies reporting, 68% have topped earnings expectations, according to Refinitiv data, just above the long-term average of 65%. Overall profits, however, are still expected to fall 0.8% from the same period last year to $333.8 billion, before notching steady improvement between now and the fourth quarter of 2020.

European stocks were notably weaker, as well, with basic resource, luxury goods and airline stocks pulling down bourses around the region as investors reacted to news of the coronoavirus spread in southeast Asia.

The Stoxx 600 benchmark slumped 2.03% in the opening hours of trading, while German's DAX performance index fell 2.2% and Britain's resource-heavy FTSE 100 shed 2.34% in London , 

Japan's Nikkei 225, the biggest market that has remained trading in Asia over the Lunar New Year celebrations, notched its biggest single-day slump in five months Monday with a 2.03% decline that pulled the benchmark to a 23,343.51 point close.

Safe-haven trading dominated the Asia session, with benchmark 10-year U.S. Treasury note yields hitting a thee-month low of 1.608% and gold rising more than 1% to trade at $1,585.80 per ounce.

The expected impact on China GDP, as well as broader economic activity around the Asia region, pounded oil prices to extend their declines to the lowest levels since late October as investors re-priced crude in anticipation of softer near-term demand.

Brent crude futures contracts for March delivery, the global benchmark for pricing, were last see seen $2.02 lower from their Friday close in New York and trading at $58.63 per barrel, while WTI contracts for the same month were marked $1.91 lower at $52.28 per barrel.