Markets Wrap

Stocks Drop, Bonds Gain on Fears Over Virus Impact

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U.S. equity futures slid with stocks on Thursday as investors mulled mounting evidence that the coronavirus epidemic is disrupting the world’s second-largest economy. Bonds gained and China’s offshore yuan briefly weakened past 7 for the first time this year.

Contracts for the three main American equity benchmarks pointed to losses at the open, and the Stoxx Europe 600 Index declined as all but two sectors traded in the red. Shares fell across Asia as a slew of companies suspended some of their China operations in an effort to help contain the illness, with economists starting to cut growth forecasts. Treasury yields added to declines, with the 10-year yield now at the lowest since October.

Earnings continued to roll in. U.S. tech giants presented a mixed picture after the bell on Wednesday, with Facebook Inc.’s results underwhelming as Microsoft Corp. and Tesla Inc. topped expectations. In Europe:

Gilts fell and the pound strengthened after the Bank of England voted 7-2 to keep its key interest rate unchanged. The euro edged higher after data showed an uptick in regional manufacturing sentiment.

With the death toll from the coronavirus rising to 170 and the number of cases continuing to increase, investors are cautious ahead of a meeting of the World Health Organization’s Emergency Committee later Thursday. Following Wednesday’s Fed gathering, where he and his colleagues kept policy on hold, Chairman Jerome Powell said the outbreak of the virus will likely hit the Chinese economy and could spill wider, but it was too early to assess its impact on the U.S.

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“If things go wrong, whether earnings disappoint or the coronavirus causes a short or a long-term problem for the economy, there is not a lot of buffer in asset prices to absorb that,” said Simon Doyle, head of fixed income and multi-asset at Schroders in Sydney. “Clearly there will be a growth shock as people stop traveling, but we don’t know exactly how that will play out. From a market perspective, the lack of a risk premium does make markets vulnerable if it’s worse than people hope it is.”

Elsewhere, crude oil fell to about $52 in New York after the biggest jump in U.S. stockpiles in almost three months.

– BLOOMBERG

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