Fears over the global economic impact of a deadly new SARS-like virus sent oil prices plunging more than 2 percent yesterday to extend last week’s sell-off, while safe-haven assets including the yen and gold rallied.
As the death toll from the Chinese epidemic jumped to 80 with those affected worldwide approaching 3,000, analysts said there were growing fears the crisis could become as bad as the SARS outbreak that hit Asian markets in 2003.
Stephen Innes at AxiCorp Financial Services Pty said the economic shock to China and the world — just as a growth slowdown appeared to be easing — could be massive.
“The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel,” he said in a note. “But also because any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalization.”
He added: “Unlike 2003 where SARS was less impactful on the developed world market, the rest of the world could feel the pinch this time around.”
If the new virus has the same impact on China as SARS, the falls could be worse then projected, Innes said, because consumption is a bigger part of the country’s economy and its overall growth trajectory is weaker.
Most regional markets were closed for the Lunar New Year break, but Tokyo was open and fell 2 percent. Bangkok plunged nearly 3 percent on worries about the Thai travel sector, while Mumbai, Wellington, Manila and Jakarta also suffered losses.
Both main oil contracts tumbled more than 2 percent, having dropped more than 6 percent last week owing to concerns about the effects on demand in the world’s No. 2 economy.
“With ample supply around the world, oil is more vulnerable than most markets to a shock economic growth slow down,” Oanda Corp analyst Jeffrey Halley said.
The flight to safety saw the yen rally against the US dollar, with the unit now up more than 1 percent from eight-month lows touched earlier this year.
However, the greenback rose across the board against higher-yielding, riskier units such as the South Korean won, Thai baht, Indonesian rupiah and Australian dollar.
Gold, another go-to asset in times of turmoil and uncertainty, is heading back toward US$1,600 and the six-year peaks touched at the start of this month.
While the main focus is on the spread of the virus, traders will also be keeping an eye on the release of earnings this week from top companies including Apple Inc, Amazon.com Inc, Microsoft Corp, Facebook Inc and Samsung Electronics Co.
The last three months of the year are traditionally strong for Apple, and average estimates suggest that revenues of US$88 billion and profits of US$24 billion will test records when it reports earnings today, while Amazon on Thursday is also pegged to post record quarterly revenues — of US$86 billion even if profits fall, according to consensus figures collected by S&P Global Market Intelligence. It is much the same story at Microsoft Corp, one of Amazon’s main rivals in cloud computing: revenues and profits within a whisker.
Even Facebook is expected to post record profits, and revenues above US$20 billion for the first time.
Additional reporting by the Guardian
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