27.01.2020 – Daily Report. It’s not a panic yet. But concerns about an economically disastrous spread of the corona virus are growing – in China, in Europe and in the USA. This gives the bears new arguments for sales. And Wall Street its trigger for the long overdue reset.
Frankfurt goes underground
Investors on the German stock exchange played it safe at the beginning of the week: At the start of trading, the DAX had fallen sharply in the meantime. Most recently, the leading German index was down 2 percent to 13,313 points – a loss of 264 points. US futures were in the loss zone at 1.3 percent. On the stock exchange, fears of the corona virus were allayed. Unsurprisingly, it was mainly the Lufthansa share in the DAX that plummeted.
Ifo index disappointed
The Ifo business climate index also provided food for the bears: The indicator unexpectedly dropped to 95.9 points in January. In December, the index had still been at 96.3 digits. This was the first decline since August 2019.
Fear of the lung virus
Worldwide, the fear of epidemics dominated events. Over the weekend, the number of confirmed infections climbed by more than 700 to over 2,700, and that is just the number of known cases – lung disease is contagious even before the first symptoms appear. The number of deaths has risen to 80, compared to 26 on Friday.
Many brokers drew comparisons with SARS – starting from China, around 8,000 people were infected in 2002/2003 and around 800 died. The World Bank and the World Health Organization (WHO) had estimated the total damage to the global economy at 30 billion US dollars. And the current virus is said to be even more dangerous than SARS at that time. In the meantime, new cases have been confirmed in more than ten other countries.
In the meantime, the Chinese authorities extended the Chinese New Year holidays by three days in order to contain the spread. If the economy in China, with its gigantic industrial and consumer demand, were to collapse, this would have a negative impact on the global economy. No wonder that crude oil has gone into hiding: North Sea Brent and WTI oil became more than 3 percent cheaper. Our conclusion: the corona virus is the Black Swan, which hardly anyone had on their radar before. Now he has landed.
Safe haven escape
As so often, investors reacted by fleeing to safe havens. The price of gold rose to $1,583 an ounce. The Swiss franc was also in demand. The euro slid against it to 1.063, its lowest level in almost three years. US government bonds were also on the buying list; the yield on ten-year bonds had fallen to almost 1.4 per cent on Friday, the lowest level since December.
Asian sell-off
Meanwhile, investors parted company with Asian assets. In Tokyo, the Nikkei fell by around 2 per cent to 23,344 points – the lowest level in more than two weeks. The Korean Kospi lost about 1 percent to 2,246 points. On the Chinese stock exchanges there was still no trading due to the New Year. But the offshore yuan gave a foretaste of the coming price development on the Chinese stock exchanges, and the dollar rose to 6.9367.
New York in reverse
Investors on the US stock markets also parted company with their assets on Friday because of the virus. The Dow Jones dropped 0.6 percent to 28,990 points, bringing the week’s balance to minus 1.2 percent. The S&P 500 dropped 0.9 percent to 3,295 points on Friday. The Nasdaq 100 lost 0.8 percent to 9,141 points.
And that might not be the end of the story: As explained here days ago and before the current virus scare, the indices are hovering well above the 50-day and 200-day lines. A little panic could cause the indicators to drop loosely down to these levels.
What the day brings
At the beginning of the week the diary is only sparsely filled. As always, you can find an overview here:Market Mover
In the USA the figures for the sale of new homes are due at 4:00pm.
The Bernstein-Bank wishes successful trades and a profitable week!
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