News

Health fears send stocks tumbling, gold shines

The rising death toll in Italy on account of the coronavirus crisis is being mirrored by the major slump in European stocks.

Europe

The FTSEMIB is at the forefront of the declines seeing as Italy is the epicentre for the health crisis in Europe. Equity benchmarks in London, Frankfurt and Paris are all experiencing massive losses too.

The tourist industry is receiving a thrashing as traders are fearful there will be a major drop-off in people going on holidays, or even traveling in general. At the early stages of the health emergency, the airlines that focus on Europe – easyJet and Ryanair, held up alright, but now they are in the firing line. European equity benchmarks were too complacent when the health crisis was raging in China, but now they are getting their comeuppance.          

Despite the chaos in the markets today, Bunzl shares are showing modest gains on the back of the respectable figures full-year figures. Annual adjusted pre-tax profit ticked up by 2.4% to £579.1 million, which was slightly above market forecasts. A series of acquisitions helped the company eke out an increase in earnings but a company shouldn’t become overly dependent on acquisitions for growth. The US operation saw a drop of in organic revenue growth, which is worrying seeing as the unit is the group’s biggest earner.

 Associated British Foods posted a reasonably positive update this morning but the broader market sentiment has dragged the stock into the red. The group predicts that first-half adjusted operating profit to be ahead of last year’s figures, and strong growth is expected for the second-half too. The fashion band Primark is well stocked for many months, but the company cautioned that should there be major delays at factories in China, then the business could be hit.               

US

The fear factor surrounding the health crisis in Italy has hit Wall Street. Dealers are worried the coronavirus is going to be become a global issue, whereas until recently many traders were behaving as if it was just an issue for the Far East, and in particular China. The Dow Jones and the S&P 500 are both down more than 2.8%, while the NASDAQ 100 is offside by more than 3.3%.

Last week the US posted some not-so-hot economic indicators. The flash services PMI reading contracted for the first time since 2016, while the flash manufacturing PMI level cooled to 50.8 – a six month low. Traders are wondering if there are soft spots in the US economy now, what things could look like if Europe goes into lockdown on account of the health woes.

FX

EUR/USD is higher today on the back of the respectable German Ifo update, plus, the wider dip in the US dollar is assisting the euro too. The German Ifo business climate reading for February came in at 96.1, which was an improvement from 95.9 in January. The update was nothing special but keep in mind the euro rebounded nicely on Friday, so we are seeing a continuation of that move.

GBP/USD is in the red on account of sterling’s weakness across the board. There were no major economic reports from the UK today but the pound is under pressure nonetheless. The UK is linked to the eurozone via trade, so any slowdown in the common currency area is likely to impact the British economy.

Commodities

Gold is in the high demand today as traders are seeking out safe-haven assets, and the metal falls into that category. The intense selling pressure being applied to equity markets to leading to a surge in demand for gold. The commodity is benefitting from the flight to quality play – hence why it has jumped to a seven year high.

WTI and Brent crude have tanked as traders are worried the coronavirus is on the verge of becoming a global problem, and in turn they are shunning the energy. The health crisis in China is still causing traders concern, but the prospect of weakened demand from Europe too has hammered sentiment. Should the fears continue to circulate, the oil contracts could retest the February lows.           

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