Coronavirus hits stock markets as shares of long haul airlines fall
Major stock market indices were hit and the shares of international airlines fell amid concerns about the potential spread of the coronavirus on world business and tourism.
The Chinese currency was also hit on fears that the virus could spread rapidly as 3 billion people prepare to travel this weekend for the Chinese or Lunar New Year., said Joshua Mahony at online broker IG.
The Cac-40 index in Paris fell as travel, tourism, and luxury product stocks fell. The Ftse-100 in London was also down, as sterling rose after the markets though again about whether the Bank of England would, after all, decide to cut interest rates following strong UK jobs figures.
Shares in international airlines that rely on both long haul business and tourism passengers ended lower. Britsih Airways and Aer Lingus owner IAG fell 3%; France-KLM fell 2.5% and Lufthansa shares closed 3.4% down.
The emergence of the illness in China stirred memories of the Sars outbreak 17 years ago for some market watchers, though it isn’t yet as serious.
The developments provided an excuse for investors who bid up US stocks to record highs last week to take a pause and assess the outlook for global growth and corporate profits as earnings season picks up.
“There seems to be a little bit of profit-taking, maybe a little less risk-taking today,” said Yousef Abbasi, global market strategist at Intl FCStone.
You’re going to see people thinking about what is normally a travel and leisure holiday in China, and that comes in question.
Elsewhere, Germany’s Dax index briefly surpassed the peak reached two years ago.
President Donald Trump’s appearance at the World Economic Forum at Davos was "as much about patting himself on the back as anything", said Mr Mahony at IG, as his Treasury Secretary Steve Mnuchin lays out a plan to provide a tax cut at the next budget.
"With the 2020 election looming, cynics will simply see this as a way to buy votes. However, from a market perspective, the prospect of a sharp ramp-up in disposable income provides yet another reason to expect US out performance under Trump," he said.
Also at Davos, Scott Minerd, investment chief at the Guggenheim Partners had a warning, saying the markets weren't as robust as they seemed, and likening the inflation of asset prices caused by the loose money policies of central banks to a “ponzi scheme” that eventually must collapse.
“We will reach a tipping point when investors will awake to the rising tide of defaults and downgrades,” he wrote in a letter from the World Economic Forum meeting.
“The timing is hard to predict, but this reminds me a lot of the lead-up to the 2001 and 2002 recession,” he said.
Mr Minerd cited rising defaults despite a rally in riskier assets, and reiterated a warning that some corporate bonds risk further downgrades. He said that type of debt is at a greater risk of deterioration than it was in 2007.
Anne Walsh, Guggenheim’s fixed-income chief, said in an interview that 15% of the US economy is already in recession.
She said the US central bank's efforts to pump liquidity into markets has created “zombie companies” that may see an outflow of capital as the utility of that money continues to diminish, she said.
