Coronavirus shuts down factories and conferences but markets register gains.
11 February

Coronavirus shuts down factories and conferences but markets register gains.


The coronavirus has continued to shut down some multinational factories in China threatening supply chains which could result in a supply shock. Shop and restaurants in major Chinese cities still remain closed and many work from home as containment measures including transportation curbs are enforced in many parts of the country as consumer demand also gets hit by the epidemic. The tourism and aviation sectors are expected to be hit harder than they were by SARS. The Singapore tourism board announced that visitor arrivals are estimated to fall by 25% to 30% this year, adding to further possible weakness in the local economy. There has also been over a dozen large trade fairs and industry conferences that have been postponed or disrupted due to the virus situation, potentially hampering deals worth billions of dollars. The World Bank is offering technical assistance to China to help battle the coronavirus epidemic but no new loans, the development lender’s president, David Malpass, said yesterday. The death has soared past 1,000 as worry grows that the extent of economic disruption to the world’s second-largest economy is greater than what was anticipated initially. 319 cases have been confirmed in 24 other countries and territories outside mainland China, according to the World Health Organization (WHO) and Chinese health officials, with two deaths, one in Hong Kong and the other in the Philippines.

Asian share markets followed Wall Street, registering gains despite many of China’s factories remaining closed after the extended holiday break. MSCI's Asia-Pacific shares rose 0.9%, with Shanghai ahead by 0.8%. Nikkei closed for a holiday. EUROSTOXX 50 rose 0.7% and the FTSE gained 0.5% ahead of the UK’s GDP data release. An end-of-the-day jump in prices took Wall Street to record highs. The Dow closed 0.6% higher, the S&P 500 gained 0.73% and the Nasdaq 1.13%. The gains came in as the number of infected patients decreased, even as WHO warned the spread of the virus among people who had not been to China could be “the spark that becomes a bigger fire”.

The relative outperformance of the U.S. economy is keeping the dollar well supported, with the euro slipping to a four-month low at $1.0906. The British pound was last at $1.2913 having touched a two-month trough of $1.2870. Against a basket of currencies, the US dollar was at its highest since mid-October at 98.858. The dollar was steadier on the Japanese yen, which benefits from being a safe haven of its own, and last stood at 109.85. Risk aversion initially helped lift gold to its highest for a week, only for the strength of the dollar to pull it back 0.25% to $1,568.6 per ounce before climbing again to 1569.21$. Heavily sold Australian dollar also gained now buying 0.6706$ and the “not-as” safe-haven Swiss franc slipped to its weakest since December trading at 0.9765 against the USD.

Oil prices rose more than 1% following a rally in equity markets but investors remained jittery over the Wuhan virus that has now killed over 1,000 in China. Brent rose 90 cents to $54.16 a barrel retreating from an intraday high of $54.13. U.S. West Texas Intermediate was up 81 cents, at $50.38 a barrel. Traders remain concerned that China’s oil demand could take a further hit if the coronavirus cannot be contained. Chinese state refiners have already said they will cut as much as 940,000 barrels per day from their crude runs in February due to the virus. OPEC+ proposed the additional cuts last week, but Russia said on Friday it needed more time to decide whether to join in any further output reductions. Oil supplies out of Brazil have also been growing, with Petrobras having hit a new production record in the last quarter of 2019 at more than 3 million barrels of oil equivalent per day. 


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