European stocks edge lower after Monday’s pounding over coronavirus spread


European stocks drifted lower in volatile trading on Tuesday as markets failed to set a floor after the pounding they took over the spread of the coronavirus in Italy and South Korea.

A day after a 5.4% drop that was the worst single-day percentage fall in more than three years, Italy’s FTSE MIB

I945, -1.19%

 fell 0.7% to 23259.18. Banco BPM

BAMI, -3.38%

 and Juventus Football Club

JUVE, -1.61%

each lost over 3%.

The Stoxx Europe 600

SXXP, -0.75%,

which ended Monday at its third-lowest level of the year, slipped 0.5% to 410.01.

The spread of the coronavirus in Italy is particularly worrying since the country has not identified the so-called patient zero who spread it.

South Korea now has 977 confirmed cases to Italy’s 232, according to the Covid-19 tracker from Johns Hopkins. Mainland China has 80,242 confirmed cases.

“Given the incubation period of the virus, the next two weeks will be critical in determining the extent of the outbreak, the steps authorities are willing and able to take to contain it, and the economic effect of those measures,” said Mark Haefele, global chief investment officer of wealth management at UBS, which prefers emerging market equities over eurozone stocks.

U.S. stock futures

ES00, +0.13%

 nudged higher on Tuesday following the 1,031-point annihilation in the Dow Jones Industrial Average

DJIA, -3.56%

on Monday.

The yield on the German 10-year bund

TMBMKDE-10Y, -6.94%

fell three basis points to -0.51%. Yields move in the opposite direction to prices.

Of stocks on the move, U.K. insurer Prudential

PRU, +1.48%

 rose 1.9% after the activist investor Third Point disclosed it was the company’s second-largest shareholder and called on it to separate its U.S. business, Jackson National Life Insurance, and Asian arm, Prudential Corp. Asia.



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Why the coronavirus outbreak is delivering a fresh dose of recession fear to stock-market investors


The old saw used to be that when the U.S. sneezes, the rest of the world catches a cold.

Now, a more apropos adage for market bears may be that when an outbreak of coronavirus grinds the world’s second-largest economy to a halt, the rest of the world catches a recession.

Indeed, recession fears resurfaced on Wall Street last week, even as equity markets stood not far from all-time highs, amid volatile trade that whipsawed mostly on jitters that supply chains and economies could suffer from the spread of the infectious illness that originated in Wuhan, China, known as COVID-19.

“The [coronavirus spread] definitely injects an element of uncertainty into markets for the near term and for the longer term as well,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

Stocks sold off sharply Monday to add to last week’s decline, with the Dow Jones Industrial

DJIA, -2.65%

 down 779 points, or 2.7%, while the S&P 500

SPX, -2.56%

 dropped 2.6% and the Nasdaq Composite

COMP, -2.97%

 shed 2.9%.

Analysts at BofA Global Research said the probabilities of a recession have increased and that is reflected in the action in yields for the 10-year Treasury note and the 30-year Treasury bond, which plunged Friday to its lowest rate on record. Investors will flee to the presumed safety of U.S. government bonds, driving yields lower, with the hope of avoiding losses that can derail riskier assets in a selloff.

Read: Gold, Treasury prices soar as coronavirus fears spark global stock-market selloff and flight to safety

The 30-year bond yield

TMUBMUSD30Y, -4.90%

fell a further 9 basis points Monday into uncharted territory at 1.826%. The 10-year note yield

TMUBMUSD10Y, -7.06%,

which last week tumbled below the key level of 1.5%, wa down 10 basis points at 1.371%. Bond yields move in the opposite direction of prices.

BofA said a move for the 10-year below 1.4% could represent a tipping point for the market, one that raises the probability for a recession, particularly if the Federal Reserve continues to hold benchmark rates at the current 1.50-1.75% range.

Here’s how BofA’s analysts put it (see attached chart): “Indeed, breaking 1.4% in an on-hold context for the Fed creates a significant inversion of the curve, pushes recession signals higher…”

Source: BofA Global Research

Part of the worry for fixed-income folks is the flattening of the yield curve, which traces yields across maturities from short-dated to longer term. Once flat, there is a greater potential for the curve to invert, leaving short-end debt paying out more than longer-dated obligations.

Inversions are seen as a reliable indicator of an economic downturn or recession. And one key measure of that, the spread between the 2-year and 10-year T-note yield, stood at less than 10 basis points on Monday.

Already, the 3-month T-bill yield

TMUBMUSD03M, -1.16%

 at 1.505% trades above the 10-year rate.

Read:5 things investors need to know about an inverted yield curve

For some, the reading of services activity from IHS Markit released on Friday also elevated recession concerns, which fell 4 points to 49.4. Any number over 50 signifies expansion; below 50 points to contraction.

Tom McClellan, a prominent technical analyst, said the yield curve inversion that occurred in the summer of last year is still in force and that market participants have been too dismissive of that recession signal (see attached chart): “Generally speaking, it takes about 15 months for those effects to show up in overall economic data,” he wrote in a Thursday research note.


Recession signals

“Last year’s yield curve inversion is still yet to be felt, and that is not even factoring the additional economic slowdown effect from the coronavirus,” McClellan wrote.

Amid all this recession talk, Gold

GCJ20, +1.69%

has been on a tear. The precious metal often draws heavy bids during market uncertainty. On Monday, it extended gains, rising 1.7% to $1,676.50 an ounce after last week finishing at its highest level since 2013.

Investors couldn’t stop talking about the shiny yellow metal, even through it’s unclear if those bets will pay out over a longer term.

Even so, the Fed doesn’t yet seem inclined to lower rates to placate nervous investors. Vice Chairman Richard Clarida said the central bank is unlikely to lower interest rates given the positive economic outlook. On CNBC on Friday, Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard appeared to be sanguine about the health of the U.S. economy, even as they watched coronavirus closely.

BMO’s Ma said that those takes may be justified because the health of the domestic economy doesn’t appear to be one genuinely signaling that a recession is afoot.

Corporate earnings for one have been mostly solid. “Q4 results came in better than expected, rising 1.6% versus the expected 2.1% decline, representing the 32nd consecutive quarter in which actuals beat end-of-quarter estimates,” said Sam Stovall chief investment strategist at CFRA Research.

However, he said the outlook was softening, noting that “2020 forecasts are now at 5.9% versus the 7.9% at the start of the year.”



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Buffett says coronavirus doesn’t dampen his long-term support for stocks By Reuters


© Reuters. Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc’s annual shareholder meeting in Omaha

(Reuters) – Warren Buffett said on Monday that negative headlines, including on the coronavirus outbreak, do not dampen his view that stocks are a good place for many people to invest for the long-term.

Speaking on CNBC, Buffett said he had no special expertise about coronavirus, but that investors with a 10- to 20-year time horizon and focused on companies’ earnings power will find they have “made a good investment” by investing in stocks.

“You certainly can’t predict the market by reading the daily newspaper,” he said. “If you look at the present situation, … you get more for your money in stocks than bonds.”

Buffett said the U.S. economy was “strong, but a little softer” than it was six months ago, and acknowledged that the coronavirus outbreak had affected many of his Berkshire Hathaway Inc .’s (N:) businesses.

He said many of the roughly 1,000 Dairy Queens in China are closed, while those that are open “aren’t doing any business to speak of”, while companies such as Johns Manville insulation and Shaw carpeting are seeing supply chain disruptions.

“There’s always trouble coming,” he said. “The real question is where are those businesses going to be in five or 10 years.”

Buffett spoke after Berkshire released year-end results on Saturday.

Operating profit fell 3% to $23.97 billion, hurt by a decline in insurance underwriting. Net income totaled a record $81.42 billion, aided by unrealized gains in stock investments such as Apple Inc (O:).

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Primark owner warns coronavirus threatens clothing supplies By Reuters



LONDON (Reuters) – Primark owner Associated British Foods (L:) warned on Monday there was a risk of supply shortages on some lines later in the 2019-20 financial year if delays in factory production in China are prolonged due to coronavirus.

AB Foods, which sources a broad assortment of its product from China, said it typically builds inventories in advance of Chinese New Year and, as a consequence, is well stocked with cover for several months and does not expect any short-term impact.

“We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions,” it said on Monday.

The group also owns major sugar, grocery, ingredients and agriculture arms.

Several of its food businesses have operations in China. It said the China sugar campaign was completed in January before the coronavirus outbreak developed significantly.

The group said its AB Mauri, AB Agri and Ovaltine factories are operating, but at reduced capacity due to labour and logistics constraints.

AB Foods forecast first-half sales and adjusted operating profit ahead of the previous year. Its outlook for the full-year is unchanged.

Primark’s first-half sales were forecast to be up 4.2% on a constant currency basis.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Italian stocks set to lead sharp decline for European equities as coronavirus spreads


European stock markets were poised for a sharply lower open on Monday, with investors gripped by worry as coronavirus cases surged outside of China — in South Korea, Iran and Italy — over the weekend.

Futures for the FTSEMIB Italy index

I945, -1.22%

 indicated a 3.7% drop at the start of trading for the index as coronavirus cases swept through the northern Lombardy region over the weekend, which includes the financial capital, Milan. Officials put nearly a dozen towns on lockdown as the number of confirmed cases went from three on Friday to more than 150 by Monday, with three deaths.

Intesa Sanpaolo SpA

ISP, +0.00%

 said it would close branches across northern Italy, due to the quarantine that is affecting 50,000 people.

German DAX 30 index futures

DAX, -0.62%

 pointed to a 2% drop and those for the FTSE 100 index

UKX, -0.44%

 were down about 1.7%. Spain’s IBEX 35 index

IBEX, -0.45%

 was set to lose 2.4% at the start, according to futures prices. European stocks finished lower last week amid concerns about the virus’s spread beyond China’s borders, with the Stoxx Europe 600 index

SXXP, -0.49%

  dropping 0.5% on Friday to 428.07, and down 0.6% for the week.

South Korea reported 161 new cases on Monday, bringing the country’s total to 763 cases, and two more deaths raising that toll to seven. Iran reported 43 cases and eight deaths. China reported 409 new cases, raising the country’s total to 77,150, along with 150 deaths.

“With further outbreaks likely to continue across the world, and Iraq and Turkey closing their borders to Iran after cases being reported there, financial markets could well have to get used to an extended period of uncertainty, as consumer behavior globally starts to change,” said Michael Hewson, chief market analyst at CMC Markets UK, in a note to clients.

“There is already evidence that this is happening, with Chinese tourist numbers down across the world, while the French finance minister said that tourist numbers in France were already down over 30% at this weekend’s G20 finance ministers meeting,” he said.

On Saturday, the International Monetary Fund warned the virus outbreak could reduce global economic growth by 0.1% this year, and drag China’s annual growth 0.4 percentage points lower than January estimates.



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