Global stocks, oil tumble as China virus rattles markets

LONDON/NEW YORK: Global stock markets and oil prices plunged on Monday as panicked investors bolted into safer assets such as gold after China warned that the spread of a deadly new coronavirus was accelerating.

Fears of a repeat of the 2003 SARS outbreak, which also began in China, spooked investors who only recently pushed markets to record highs – meaning there was plenty of room for a reverse. All sectors were hit but luxury goods makers and airlines suffered particularly as Chinese tourist spending is a key factor for them.

Wall Street stocks tumbled early Monday, joining a global selloff amid rising fears over the widening coronavirus outbreak in China. Wall Street opened lower, quickly losing nearly two percent as the global sell-off continued, adding to the pressure on Europe. About 30 minutes into trading, the Dow Jones Industrial Average had fallen 1.4 percent, or more than 400 points, to 28,584.81.

The broad-based S&P 500 dropped 1.4 percent to 3,248.82, while the tech-rich Nasdaq Composite Index shed 1.8 percent to 9,147.69.

Losses on Wall Street were broad-based, with almost all 30 Dow members in the red. Multinationals with significant China operations were hard-hit, with Apple shedding 2.3 percent, Nike 2.7 percent and Starbucks 3.4 percent.

Travel stocks also took a beating. United Airlines dropped 4.8 percent, Marriott International shed 3.2 percent and Wynn Resorts slumped 6.0 percent.

Wynn operates two resorts in gambling center Macau, where there have been six confirmed coronavirus cases.

In mid-afternoon trade in Europe, London was down some 2.2 percent, with Paris and Frankfurt doing even worse with losses of some 2.6 percent each.

Oil prices plunged, with Brent crude dropping below $60 a barrel for the first time in almost three months. Oil prices were down around 2.5 percent, coming off early lows hit on concerns over demand from the world’s top energy consumer China.

The oil market had already tumbled more than six percent last week owing to concerns about the effects on demand in China, which is the world’s number two economy after the United States. However, top oil exporter Saudi Arabia said on Monday the impact of a deadly coronavirus epidemic on oil demand was “extremely limited” but that the kingdom was closely following events.

The outbreak’s impact “on the global demand for oil is extremely limited,” Energy Minister Prince Abdulaziz bin Salman said in a statement cited by the SPA state news agency.

“A big part of the impact on global markets including the petroleum markets... is driven by psychological factors” and “pessimistic views” among dealers, he added.

Prince Abdulaziz recalled that the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS) did not push down demand for oil. He said Saudi Arabia was “closely watching” developments in oil markets, the global economy and that of China, a major buyer of Saudi crude.

“Market participants in Europe have grave concerns about coronavirus,” said Ava Trade analyst Naeem Aslam. “The bottom line is that the virus has become deadly and it has caused a major panic in markets.”

Chinese President Xi Jinping warned over the weekend that China was facing a “grave situation” given the “accelerating spread” of the new SARS-like virus that has infected nearly 3,000 people across the country.

Analysts said there were growing fears the crisis could become as bad as the Severe Acute Respiratory Syndrome (SARS) outbreak that hammered markets and the global economy in 2003.

“Coronavirus fears have gripped the markets... as all the major European equity benchmarks are nursing big losses,” said analyst David Madden at trading firm CMC Markets UK.

“Stocks that are connected to China are feeling the pain... as traders are afraid the health crisis will curtail economic activity.”

Most Asian markets were closed for the Lunar New Year break but Tokyo was open and fell two percent. Bangkok plunged nearly three percent on worries about the Thai travel sector.

The losses marked the start of a heavy week of economic news, with earnings reports from Apple, Boeing and Exxon Mobil and a Federal Reserve policy meeting. Analysts at Oxford Economics said the outbreak “poses a notable downside risk to our China growth forecast in Q1 and possibly Q2, depending on its severity.”

The flight to safety saw the yen rally against the dollar, with the unit now up more than one percent from eight-month lows touched earlier this year. Gold, another go-to asset in times of turmoil and uncertainty, is heading back towards $1,600 per ounce and the six-year peaks touched at the start of January.