US equity markets wiped out their gains for the year on Friday, following European and Asian shares lower as concern escalated about the impact of the coronavirus on global growth.
The death toll from the epidemic had risen to 213, Beijing said, with another 9,811 confirmed cases worldwide and a further 15,000 suspected. The US announced restrictions on entry to the country for foreigners who have recently travelled to China, and airlines cancelled flights to China.
The US equity benchmark, the S&P 500 index, closed down 1.8 per cent and the Dow Jones Industrial Average fell more than 2 per cent. Both registered their biggest weekly percentage declines since August.
Weighing on European stocks alongside coronavirus fears was economic data that showed the eurozone’s fourth-quarter growth in 2019 was only 0.1 per cent, below expectations of 0.2 per cent.
Caterpillar, the world’s biggest construction and mining equipment maker, cast a further shadow, after it reported lower sales for the past quarter and forecast worse than expected earnings for this year. Strong earnings from Amazon limited the decline of the tech-weighted Nasdaq Composite index to 1.69 per cent.
The coronavirus outbreak will reduce US economic growth by 0.4 percentage points in the first quarter in the face of declining numbers of tourists from China and exports to Asia, according to Goldman Sachs economists.
“The market reaction may deepen further if the virus spreads further,” said Kristina Hooper, chief global market strategist for Invesco. “The most recent revelation of new infections in China and elsewhere suggests that the market will be faced with further downside risks.”
With Friday’s drop, the S&P 500 wiped out its gains for 2020, having been up 3.1 per cent at its highest close earlier this month.
The benchmark index is now down 0.2 per cent year-to-date, while the Dow is down 1 per cent and the Nasdaq Composite’s 2020 gain has been trimmed to 2 per cent.
Bourses in Paris and Frankfurt earlier closed down more than 1 per cent, while the Stoxx Europe 600 was 1.1 per cent lower, leaving the continent-wide benchmark down 3 per cent for the week.
Eurostat data revealed the eurozone ended last year with a whimper, as the French and Italian economies both shrank unexpectedly, denting hopes that the region was poised to rebound from its recent sluggish performance.
Government bonds in the eurozone extended their gains this week following the disappointing growth data, pushing yields to fresh lows for the year. The yields on the 10-year German Bunds and UK gilts were down 2 basis point to minus 0.42 per cent and 0.53 per cent, respectively.
US Treasury yields also sank. The yield on the benchmark 10-year Treasury note fell to 1.50 per cent, the lowest since October. The 30-year Treasury bond yield fell below 2 per cent, the lowest since September.
Bonds had already rallied significantly in recent days as fear over the spread of coronavirus fuelled demand for haven assets.
Traders were pricing in at least one rate cut by the Federal Reserve in July, with indications of another rate cut increasing for later this year.
“The market impact of the coronavirus outbreak in China . . . increasingly resembles last year’s trade-war-driven turmoil in May and August,” said Jonas Goltermann at Capital Economics. “But unless the fallout from the epidemic escalates significantly, it is hard to see the sharp falls in bond yields persisting.”
Worries surrounding the coronavirus have consequently hit Asian markets. Hong Kong’s Hang Seng closed down 0.5 per cent on Friday while South Korea’s Kospi ended its session 1.3 per cent lower.
Additional reporting by Peter Wells