US and European stock markets continued their dramatic slide today as investors rapidly lose taste for riskier assets amid the global coronavirus outbreak.
In the US, the S&P 500 stock index was 1.2 per cent lower four hours into trading. Earlier in the day it had briefly fallen into so-called correction territory – a fall of more 10 per cent since its peak last week.
The Nasdaq was down 1.5 per cent while the Dow Jones had slipped 1.2 per cent. Both had recovered some ground since morning trading.
The falls were steeper in Europe, where the UK’s FTSE 100 index finished 3.5 per cent lower, with a row with the European Union over a future trading relationship also denting shares. The FTSE had slipped below the correction mark at its lowest point in the session.
Germany’s Dax index ended the day 3.2 per cent lower, while the pan-European Stoxx 600 fell 3.8 per cent.
The stock market routs – many of them the sixth straight day of falls – came as coronavirus spread rapidly outside China. The death toll in Italy, Europe’s worst-affected country, rose to 14.
Governments have responded by locking down whole regions while flights, supply chains and businesses have been impacted, raising fears the global economy could be hit hard.
An International Monetary Fund (IMF) spokesman today said the organisation was likely to downgrade its growth projections for the world. The IMF had already said China’s growth would likely be 0.4 percentage points lower this year than originally thought, at 5.4 per cent.
Ritu Vohora, equities investment director at M&G Investments, said: “The coronavirus outbreak has replaced trade wars as the dark storm bearing on markets.”
“This is no longer just an Asia issue,” she said. “The virus has spread to Italy, South Korea and Iran and there are fears this could develop into a global pandemic.”
The World Health Organization today again stopped short of using the term pandemic, but its director-general Tedros Adhanom Ghebreyesus said the spike in cases was “deeply concerning” as the virus spread to 44 countries outside China.
Investors ran from riskier equities towards safe-haven assets such as government bonds, pushing the yield on the US 10-year Treasury to an all-time low. The yield on the bond – which moves inversely to its price – last stood at 1.305 per cent.
Hubert de Barochez, markets economist at Capital Economics, said yields in developed economies do not have much further to fall.
“In our view, the coronavirus epidemic would have to get much worse for central banks to deliver more rate cuts that investors now anticipate,” he said.
“As such, we think that government bond yields in most developed economies are more likely to rise than fall further.”