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Dow Futures Plunge as Coronavirus Spreads to Western Europe

Gold prices jumped to a seven year high Monday, while U.S. Treasury bond yields tumbled and stocks plunged, as investors reacted to the spread of the coronavirus to Western Europe.

The Monday Market Minute

  • Global stocks slide as coronavius spreads to Western Europe and Central Asia, taking the number of countries recording new infections to at least 28.
  • World Health Organization officials are worried about the spread of the virus to countries with weaker healthcare systems, while noting the latest infections have no epidemiological connections to China.
  • China President Xi calls coronavirus a "crisis and a test" for the world's second largest economy as the number of confirmed cases rises past 77,000, taking the death toll close to 2,600.
  • U.S. economic activity stalled in February, according to Friday's private sector PMI data, adding to bond yield and equity market pressures heading into the start of the week.
  • Gold hits a seven-year high of $1,678.58 per ounce in overnight trading, while oil prices plunge as investors see world economic growth slowing in the first half of the year.
  • U.S. equity futures suggest sharp opening bell declines on Wall Street , following notable early losses for European markets and the lowest 10-year Treasury note yields since July 2016.

U.S. equity futures fell sharply lower Monday, while safe-haven assets surged and oil price plunged, as investors reacted to the worrying global spread of the coronavirus, which has now been found in more than two dozen countries around the world. 

Italy has confirmed 219 cases of the pneumonia-like virus in seven different regions as of Monday, with officials verifying at least 5 deaths in Europe's third-largest economy. Iran has also said as many as 8 people have died from around 43 confirmed infections, while South Korea is grappling with a surge in weekend confirmations, taking the total to just over 800, as the virus continues to spread.

In China, where health officials have put the tally of confirmed cases at just over 77,000, some 2,600 people have died from the coronavirus, officially known as COVID-19, since it was first identified late last year in the central industrial city of Wuhan.

China's President, Xi Jinping, called the coronavirus spread both a "crisis and a test", but admitted Sunday it "will inevitably have a relatively big impact on the economy and society." 

However, while investors have been able to largely discount the impact of the virus on global markets, given its isolation in the world's second largest economy, the spread to nations in Europe and central Asia -- which have no clear travel or epidemiological links to China -- has triggered a notable flight to safety in early Monday trading.

U.S. equity futures suggest sharp declines on Wall Street as a result, with contracts tied to the Dow Jones Industrial Average indicating an 890 point plunge while those linked to the S&P 500, which fell 1.05% on Friday after the weakest reading for service sector economic activity in seven years in February, are priced for a 100 point retreat. Nasdaq Composite futures were last seen indicating a 320 point opening bell slide. 

Gold prices jumped more than 2.4% in overnight trading to just under $1,684.3 per ounce, the highest since February 2013, while oil prices tumbled by around 2.5% as investors continued to trim bets on a near-term comeback in energy demand from China and the surrounding region.

Brent crude futures contracts for April delivery, the global benchmark for pricing, were last see seen $2.35 lower from their Friday close in New York and trading at $56.15 per barrel, while WTI contracts for the same month were seen $2.03 lower at $51.35 per barrel.

Friday's weak PMI data, which also showed a worrying pullback in manufacturing activity, as well as the spread of the coronavirus to Western European, primed bets for a near-term rate cut from the U.S. Federal Reserve and pounded U.S. government bond yields

Benchmark 10-year Treasury notes are trading at the lowest levels -- 1.362%  -- since July 2016 while 30-year bonds hit a new record low yield of 1.85% in overnight trading after falling 4 basis points on the session.

CME Group futures prices, meanwhile, suggest at least a 45% chance of an April rate cut, which would take the Fed Funds rate to a range of between 1.25% and 1.5%, with traders betting on a 70% chance the Fed will move by June.

European stocks were also notably weaker by mid-day of trading Monday, with the Stoxx 600 falling 4% in Frankfurt and Britain's FTSE 100 falling 3.3% in London. Germany's DAX performance index, meanwhile, tumbled 4%. 

In Italy, the benchmark FTSE MIB slumped 5.33% in Milan, which would put it on pace for its worst single-session decline in nearly four years, while benchmark government bond yields jumped more than 15 basis points over their German peers to just over 1%. 

Overnight in Asia, markets in Japan were closed for a holiday recognizing the Emperor's Birthday, clipping liquidity as traders reached for safe-haven assets such as gold and the yen, while stocks slipped lower around the region, pulling the MSCI ex-Japan benchmark 2.14% lower heading into the close of trading.