Global share markets skidded Monday, with Europe suffering its biggest slump since mid-2016, oil prices sank, safe-haven gold surged and U.S. Treasury yields hit their lowest since mid-2016, as coronavirus cases spread outside China, darkening the outlook for world growth.
The slump followed a sell-off Friday on Wall Street and a weekend meeting in Riyadh, Saudi Arabia, of finance ministers and central bank chiefs of the Group of 20 major industrial economies where officials warned the outbreak that began in China is threatening to derail world growth.
Europe took a beating early on, with Italy plunging more than 4.5% after a spike in cases of the virus left parts of the country's industrial north in virtual lockdown. That put Milan on course for its worst day since 2016.
Frankfurt and Paris were both down more than 3.5% and London's FTSE dropped 3.3%, wiping at least $400 billion off the region’s market value in a few hours.
The flight to safety was just as resounding. Gold surged 2.5% to a seven-year high of $1,680 an ounce, taking its gains for the year past 10%.
Bonds rallied, too. Ten-year U.S. Treasury yields dropped below 1.4% for the first time since July 2016. The 30-year Treasury touched a record low at 1.85% and German yields dropped to -0.475%, their lowest in more than four months.
"Everybody sees that this could be another leg down for the economy, and we were already in quite a fragile state to begin with," said Rabobank's head of macro strategy, Elwin de Groot. "It could be another step towards a recession in more countries."
In Asia, South Korea's KOSPI slumped 3.9% after the government declared a high alert. The number of infections as of Monday jumped to 763 and deaths rose to seven.
Australia's benchmark index slid 2.25% and New Zealand fell about 1.8%. China's blue-chip CSI300 index closed down 0.4%, taking MSCI's broadest index of Asia-Pacific shares outside Japan at its lowest since early February.
The virus has so far killed 2,592 people in China, which has reported 77,150 cases, and spread to some 28 other countries and territories, with a death toll outside of China around two dozen, according to a Reuters tally.
Iran, which announced its first infections last week, said it had confirmed 61 cases and 12 deaths, with most of the infections in the holy city of Qom. Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan imposed travel and immigration restrictions on the country.
"There is lots of bad news on the coronavirus front with the total number of new cases still rising," AMP chief economist Shane Oliver wrote in a note. "Of course, there is much uncertainty about the case data. New cases outside China still look to be trending up."
Dow plunges more than 800 points
Among U.S. stocks, the Dow Jones Industrials fell more than 800 points within minutes of the market open Monday. The benchmark S&P 500 fell below its 50-day moving average, while the blue-chip Dow slipped below its 100-day moving average, all closely watched indicators of momentum.
The Dow Jones Industrial Average fell 589.48 points, or 2.03%, at the open to 28,402.93. The S&P 500 opened lower by 80.14 points, or 2.40%, at 3,257.61. The Nasdaq Composite dropped 388.15 points, or 4.05%, to 9,188.44 at the opening bell.
As investors wagered central banks would step in with policy stimulus to support economic growth, U.S. fed fund futures signaled more rate cuts later this year and a near 20% chance of a cut next month.
FX markets reacted by pushing up the safe-haven Japanese yen to 111.34 yen per dollar. But against the rest of the world, the dollar was again showing its strength.
The euro fell towards $1.08 and the Australian dollar, often traded as a proxy for China risk, tumbled to an 11-year low of $0.6585.
Korea's won was last down 1% at 1,219.06 after falling to its weakest since August 2019. Emerging-market currencies from Mexico's peso and Turkey's lira to Poland's zloty and Russia's rouble were in the red.
Oil market to be hit harder than SARS outbreak
In commodity markets, Brent crude fell 4%, or $2.34, to $56.16 a barrel by 1305 GMT. U.S. crude dropped 3.8%, or $2.05, to $51.33 a barrel. Among the main industrial metals, copper fell 1.4% and zinc was down 2.5%.
The coronavirus outbreak will have a bigger impact on oil markets than the SARS outbreak in the early 2000s, said Warren Patterson, head of the commodity strategy at ING, an investment bank.
“Travel restrictions and factory shutdowns caused by COVID-19 are already leading to big problems for oil-producing countries. We believe the virus’ effect on oil demand will shave some 400,000 barrels a day from global consumption growth, taking us to the lowest level in nearly a decade,” Patterson noted.
“The weekend’s developments provided us with a stark reminder that the coronavirus is currently an unstoppable force,” said Tamas Varga, an analyst at oil brokerage PVM.
“Oil prices will remain vulnerable here as energy traders were not pricing in the coronavirus becoming a pandemic,” said Edward Moya, senior market analyst at OANDA. “While some parts of China are seeing improving statistics ... markets will remain on edge until we start seeing the situation improve in Iran, Italy, South Korea and Japan.”