Stocks Tumble Around the World on Virus Jitters: Markets Wrap

(Bloomberg) -- Stocks slumped and bonds rallied as concern over the impact of a deadly virus that originated in China rattled global markets.

The S&P 500 Index fell the most in almost four months, the Dow Jones Industrial Average erased its 2020 gain and the Nasdaq-100 Index had the biggest drop since August. Chipmakers, cruise lines and casino operators were among the hardest hit as investors fled companies with close links to China. A gauge of U.S. equity volatility surged above its one-year average. European and emerging-market shares slid to the lowest since mid-December.

Equity Pounding Feels Awful But Is Pretty Much Right on Schedule

China’s financial markets will remain closed until next Monday after authorities extended the Lunar New Year break by three days as they grapple with the virus crisis. Assets that track the country’s largest stocks took a nosedive, with the iShares MSCI China ETF and Invesco China Technology ETF dropping more than 3.5%. China-based Alibaba Group Holding Ltd. and Yum China Holdings Inc. also slid. The offshore yuan sank, breaching key technical levels.

The flight to safety, which comes ahead of this week’s Federal Reserve meeting, saw volumes in Treasury futures jump to double their regular levels in Asia. The yield on 10-year U.S. bonds dropped to the lowest since October, while the dollar rose. The Swiss franc, the Japanese yen and gold paced gains in haven assets. Oil slipped to a more than three-month low, copper had its longest slump since 2014 and iron ore tumbled.

Fears that China has failed to contain the pneumonia-like virus -- which has killed at least 80 people and infected more than 2,700 -- roiled markets at the start of a week jam-packed with corporate earnings. The outbreak has shattered a calm in markets that hasn’t seen a 1% up-or-down move in the S&P 500 since early October.

Traders Eye Technicals to Predict Where Latest Stock Rout Ends

“This is now a sell first, ask questions later situation,” said Alec Young, managing director of global markets research at FTSE Russell. “Markets hate uncertainty, and the coronavirus is the ultimate uncertainty -- no one knows how badly it will impact the global economy. China is the biggest driver of global growth, so this couldn’t have started in a worse place.”

As global shares sell off, JPMorgan Chase & Co. strategists say this could end up a buying opportunity. They retained a constructive view on world equities, adding that in the past, the more stocks have fallen on similar fears, the more they have rebounded later. Both the S&P 500 and MSCI All-Country World Index surged to records this month as 2020 started on a jubilant note amid optimism over the U.S.-China trade deal.

“We thought the markets were overdue for a pullback,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, told Bloomberg TV. “Valuations are extremely stretched right now and positioning is extremely euphoric. We’ve said that if the right catalyst came along, markets would be ripe for a pullback.”

Rare VIX Inversion Points to Potential End of U.S. Equity Rout

Here are some events to watch out for this week:

• Tech giants Apple, SAP, Facebook, Samsung and South Korean chip maker SK Hynix announce earnings, as do Boeing, International Paper, GE, United Technologies, Lockheed Martin, Caterpillar, Unilever, Exxon Mobil, Shell and Chevron.
• Fed policy makers are expected to open 2020 the same way they closed 2019 -- by holding interest rates steady Wednesday.
• Goldman Sachs will hold its first-ever Investor Day on Wednesday.
• The BOE meeting is highly anticipated Thursday after a series of dovish comments raised speculation policy makers could lower interest rates.
• The U.S. reports fourth-quarter GDP Thursday.
• The U.K. is scheduled to leave the European Union Friday.

These are some of the main moves in markets:

Stocks

• The S&P 500 slid 1.6% as of 4 p.m. New York time.
• The Stoxx Europe 600 Index sank 2.3%.
• The MSCI Emerging Market Index fell 1.5%.

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%.
• The euro was little changed at $1.102.
• The Japanese yen appreciated 0.4% to 108.88 per dollar.

Bonds

• The yield on 10-year Treasuries slid nine basis points to 1.60%.
• Germany’s 10-year yield dipped five basis points to -0.39%.
• Britain’s 10-year yield declined five basis points to 0.508%.

Commodities

• The Bloomberg Commodity Index decreased 1.4%.
• West Texas Intermediate crude dipped to $53.14 a barrel.
• Gold rose 0.3% to $1,583.70 an ounce.

--With assistance from Alfred Cang, Saket Sundria, Cormac Mullen, Todd White, Yakob Peterseil, Sophie Caronello, Nancy Moran and Sarah Ponczek.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth

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