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Global Market Report - 19 March

Lex Hall  |  19 Mar 2020Text size  Decrease  Increase  |  
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Australia

Australian investors face another bleak day of panic selling as they wait to hear what the Reserve Bank will do to ease economic pain.

Offshore equities and oil prices dived overnight amid confusion and fear about how long the deadly coronavirus, that’s sent countries into lockdown, will last.

The Australian SPI200 futures contract was down 80 points, or 1.63 per cent, at 4834 points at 8am Sydney time, suggesting Australia’s volatile market will also fall.

After falling more than 6 per cent on Wednesday, the local market is down 31 per cent in the past 19 trading sessions since hitting a peak 20 February. Fears about the economic impact of the coronavirus is driving equities markets down as they watch for a peak in the number of cases.

“We’ve seen big falls in equities and oil, as well as widespread selling of government bonds, even gold is being ditched. The only winner is the US dollar,” NAB’s morning call note says.

US stocks deepened their sell-off on Wednesday and the Dow erased the last of its gains since US President Donald Trump’s 2017 inauguration, as the coronavirus pandemic threatened to cripple US economic activity.

The Dow Jones Industrial Average fell 1,333.61 points, or 6.28 per cent, to 19,903.77, the S&P 500 lost 5.18 per cent, and the Nasdaq Composite lost 4.7 per cent.

Economists expect the RBA to cut the cash rate to a new record low 0.25 per cent and launch its first ever quantitative easing program when its board meets at 2.30pm today.

The Australian dollar was buying US57.71, down from US59.98 cents on Wednesday, its lowest level since 2003.

Asia

China stocks reversed earlier gains to end lower on Wednesday, tracking losses in wider Asian markets as persistent worries over the rapid spread of the coronavirus outside China dashed risk sentiment.

The blue-chip CSI300 index fell 2.0 per cent to 3,636.26, while the Shanghai Composite Index dropped 1.8 per cent to 2,728.76.

Hong Kong stocks slumped on Wednesday to their lowest close in more than three years, joining a sell-off in other Asian markets as mounting worries over the rapid spread of the coronavirus outbreak outside China dashed risk sentiment.

The Hang Seng index fell 4.2 per cent to 22,291.82, its lowest close since January 2017, while the China Enterprises Index lost 4.5 per cent to 8,800.62.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 3.34 per cent, while Japan’s Nikkei index closed down 1.68 per cent.

Europe

European shares marked their worst close in nearly seven years on Wednesday as recent stimulus measures failed to placate investors seeking to exit equities in the face of the coronavirus pandemic.

The pan-European STOXX 600 index closed down 3.9 per cent, negating all of Tuesday’s gains when a bumper stimulus plan from the Spanish government had spurred some buying in regional equities.

The STOXX 600 has lost a quarter of its value in March, and is set for its worst month ever after the epicenter of the outbreak shifted from China to Europe.

Oil and gas stocks, which are among the worst hit by the outbreak, with crude prices sinking on lower demand, ended at their weakest level in 24 years.

London-listed John Wood Group and Tullow Oil were among the worst performers in the sector, ending about 21.7 per cent and 16.9 per cent lower, respectively.

Industrials marked heavy losses amid calls for a $60 billion bailout of the US aerospace industry, with JP Morgan analysts saying it would take years for the sector to recover.

Given that several European players depend on US demand for engineering services and parts, a slowdown in US industrial activity will send ripples across Europe.

Airbus tumbled 22.2 per cent to its lowest since 2016. France’s Safran, which supplies Boeing, ended nearly 23 per cent down, while Rolls Royce dropped about 11 per cent.

Adding to concerns over the virus, European Central Bank President Christine Lagarde told Europe’s heads of government that lockdowns being imposed to fight the coronavirus epidemic could easily cause the EU’s economy to shrink by 5 per cent, the Frankfurter Allgemeine reported.

“A short recession might not be a bad thing in terms of bringing valuations to slightly more credible levels and perhaps letting the air out of some asset bubbles.”

Among individual movers reeling from the impact of the outbreak is cruise operator Carnival PLC, which bottomed out the STOXX 600, plunging 34 per cent as the global tourism industry saw demand flat-lining.

British IT company Micro Focus International slumped 22.6 per cent after scrapping its final dividend.

Volkswagen said it would halt production at three Polish plants, while a handful of British pub and restaurant operators said they were seeking leeway on debt arrangements with their banks, due to the UK advising against social gatherings.

North America

US stocks deepened their selloff on Wednesday and the Dow effectively erased the last of its gains since US President Donald Trump’s 2017 inauguration, as repercussions of the coronavirus pandemic threatened to cripple economic activity.

The benchmark S&P 500 index ended off of its lows of the session but still down 5.2 per cent, extending the recent plunge that ended Wall Street’s longest-ever bull run. The S&P 500 is now down about 29 per cent from its 19 February record closing high.

With airports and hotels emptying and airlines asking staff to take unpaid leave to stem losses, the S&P 1500 airlines index sank 20.8 per cent. Shares in Hilton, Marriott and Hyatt hotels fell by about 12 per cent to 19 per cent.

“The market’s really reacting to fear and uncertainty and we don’t think it’s over until it finds a floor on stock prices. The floor will have to be found in containment of the viral spread and limiting the economic toll of the virus,” said Nela Richardson, investment strategist at Edward Jones.

Trump’s request for Congress to approve $500 billion in cash payments to taxpayers along with $50 billion in loans for airlines did little to stem the rout.

In one of the most dire forecasts yet issued for the potential hit from the coronavirus epidemic, a JP Morgan economist said the US economy could shrink 4 per cent this quarter and 14 per cent next quarter, and for the year it is likely to shrink 1.5 per cent.

The Dow Jones Industrial Average fell 1,338.46 points, or 6.3 per cent, to 19,898.92, the S&P 500 lost 131.09 points, or 5.18 per cent, to 2,398.1 and the Nasdaq Composite dropped 344.94 points, or 4.7 per cent, to 6,989.84.

The day’s selling at one point triggered another 15-minute trading cutout at a 7 per cent decline in yet another day of volatile trading. The Cboe Volatility index ended up at 76.45.

The S&P 500’s collapse into a bear market, among the fastest in history, has prompted some calls for a pause in trading.

US crude futures fell nearly 17 per cent on Wednesday having touched their lowest in 18 years, while the S&P 500 energy sector closed at its lowest since early 2003.

 

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