Coronavirus: Fear returns to stock markets

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Global stock markets have fallen sharply as investors continue to worry about the broader economic effects of the coronavirus.

London’s FTSE 100 share index fell more than 3% and there were similar declines in other European markets.

Upbeat pay and unemployment data failed to buoy Wall Street when the market opened.

The Dow Jones Industrial Average opened 2.7% lower, with the Nasdaq and S&P 500 registering similar declines.

US employers added 273,000 jobs in February – significantly beating expectations – while the jobless rate fell back to near a 50-year low of 3.5%.

The Labor Department report also revised up estimates of job gains in January and December, finding 85,000 more than previously understood.

The surveys, however, reflect data collected before the outbreak intensified. In recent weeks, global travel has plunged, while work, school and shopping has been disrupted in many countries.

Despite the strong data, the markets were against focusing on the impact of the virus. “Today’s jobs report is old news,” said Sarah House, senior economist at Wells Fargo.

The economic strength signalled in the report is a “little like the saying, the car was in fine condition before being involved in a collision”, said Mark Hamrick, senior economic analyst for Bankrate.com.

“The new reality, amid tremendous uncertainty, is the world has experienced a seismic shift,” he said.

Earlier on Friday, markets in Asia had seen big falls, with Japan’s Nikkei share index dropping by 2.7%.

The 3.75% drop in the FTSE 100 wipes out the gains seen earlier this week on the index.

Shares in travel companies saw some of the steepest falls once again. Cruise operator Carnival fell 4.9% to hit its lowest price since 2012.

Other big losers in the sector included EasyJet, Tui and British Airways owner IAG, which each fell more than 4%.

Elsewhere in Europe, shares in budget carrier Norwegian fell 26.2% and Air France KLM, which owns the French and Dutch flag carriers, fell 14.6%.

Banks were another group that took a hit, as investors anticipate that interest rates might be cut in order to make borrowing cheaper for companies and consumers to keep the economy buoyant.

“The markets didn’t even bother with the pretence of a calm start on Friday, bringing another rough week to a close,” said Connor Campbell, analyst at financial spread better Spreadex.

“The week’s various central bank rate cuts only served to reinforce the seriousness of the situation.”

Earlier this week, the Federal Reserve, the US’s central bank, cut its benchmark interest rate by 0.5 percentage points to a range of 1% to 1.25% in an attempt to ease investor concerns.

Many analysts predict it will cut rates again – perhaps as soon as its meeting this month.

Government bond prices are rising in the US and UK as traders seek safer assets.

The bond market – which is many times larger than the stock market – includes tradable loans to governments and businesses. Yields – how much investors will recoup in interest from the loans – drop as the price of the loan rises.

Benchmark 10-year UK government debt now only offers a 0.26% return – a record low. In the US, the yield on a 10-year Treasury also fell to a record low, at about 0.7%.

“With the 10-year Treasury yield slumping to a new record low and stock markets under pressure again today, it is questionable whether the Fed can wait until its scheduled meeting mid-month to deliver the next rate cut,” said Paul Ashworth, chief US economist at Capital Economics.

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Oil prices also fell, declining 6% as investors worried that Russia may not agree to a cut in production that other members of the Opec oil producers’ cartel are keen to see.

The price of oil has fallen by about a quarter since the coronavirus began to spread internationally, with demand for fuel expected to decline.

Brent crude was down 6%, at about $47 per barrel on Friday, the first time since 2017 the commodity dropped below $50.

US West Texas Intermediate was also about 6% lower at about $43 per barrel.

There’s also been a sharp drop in share prices in Moscow. Its RTS index fell 5.25%, led by airline Aeroflot and its 6% fall. Energy giants Gazprom and Lukoil both fell more than 4%.

Source: https://www.bbc.com/news/business-51766782

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