Coronavirus fears hit Asia markets
The widespread fears surrounding the evolving coronavirus off Wuhan can be seen taking a hit on markets with the slow return from the Chinese New Year holidays while China remains away on an extended break.
Knee-jerk reaction to the Wuhan virus
Wall Street commenced the week shrouded in fear even as the reach of the latest coronavirus remains mostly concentrated in Asia, around the epicentre of Wuhan. To some extent, given the good run of the US markets, this may have been an excuse to lock in profits from January while the impact of the evolving virus continues to be estimated. Both the Dow and the S&P 500 index saw declines of 1.57%, marking the worst one-day drops and first moves of over 1.0% since October. All sectors on the comprehensive S&P 500 index pulled back with defensives not being spared either. Correspondingly, the CBOE volatility index, VIX, had jumped back to the highest level since October, concluding the day at a level of above 18.00.
Asia markets are expected to grapple with the impact of the coronavirus in the near term as the market sentiment similarly gets badly battered over the worsening situation. In fact, given the experience from the SARS episode, this would be a region to see impact linger for a longer duration than the west going by the current state of the virus spread. As far as early movers are concerned, the likes of the South Korean KOSPI and the local STI have all pulled back over 2.0% reflecting the more severe reactions in areas with multiple confirmed cases of the virus.
Wuhan virus economic implications
Going forward, the question would be how severe the implications of the virus would be for markets. Over and above the knee-jerk reaction we have seen going into this week, it had been key sectors such as transport, tourism and selected services arena getting implicated. Other sectors are not expected to be spared either, but it remains early stages to estimate the impact. Governments including the local Singapore Ministry of Trade and Industry had spoken out on the expected impact upon the economy, business and consumer confidence, expecting this to persist for some time.
Experience from the previous SARS episode had seen to approximately six months of impact. A similar duration for the latest episode would likewise take a hit on the relevant sectors, more so now for China with the lockdown affecting more than 50 million people in the Hubei province and Wuhan being a key transportation hub. That said, defensives such as consumer staples and utilities are expected to fare relatively better given the nature of their demand. Although China had also extended the Chinese New Year break by one day to the following week, the seasonal holiday distortions may also mute the effect on production, that is barring further extensions from here.
All in all, the economic implications remain to be seen, but amid the uncertainty, it seems that China would be one taking a bigger toll. It had perhaps been no surprise seeing USD/CNH shooting to the highest level since December as the weak sentiment hit. USD/CNH can be seen eyeing the 7.00 figure, one to watch.
Safe haven and commodities react to Wuhan virus risk
Similarly, USD/JPY had traded lower as the Wuhan virus ratchet up the market reactions this week. Prices had slipped past the $109.00 level into Tuesday’s trade, threatening the 100-day moving average of around $108.70, which could be at risk of being broken should the return from the Chinese New Year holidays bring about a worsening of the health risks.
More importantly, Brent Crude can be seen resting at a key support level at around $58.03 per barrel (bbl) after sliding past the $60/bbl figure. The rise in US supply coupled with the potential dent of the coronavirus on demand and production, particularly for China which is the world’s number 2 consumer, had underpinned this uncomfortable drop in prices for OPEC and co. There are some expectations that the oil coalition could step in, but any firm break here of the support could open the room towards $55/bbl levels.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Seize your opportunity
Deal on the world’s stock indices today.
- Trade on rising or falling markets
- Get one-point spreads on the FTSE 100
- Unrivalled 24-hour pricing
See opportunity on an index?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on an index?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from one point on the FTSE 100
- Trade more 24-hour indices than any other provider
- Analyse and deal seamlessly on smart, fast charts
See opportunity on an index?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.