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Equities
Indexes in Canada and the U.S. opened deep in the red Monday morning as concern over the spread of the coronavirus gripped global markets.
At 09:46 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 0.87 per cent at 17,413.07.
Energy stocks were down about 2 per cent on the back of weaker crude prices as traders attempt to gauge the impact of the virus on global demand. Financials lost 0.9 per cent and industrials fell 0.8 per cent.
In the U.S., the Dow Jones Industrial Average fell 447.24 points, or 1.54 per cent, at the open to 28,542.49. The S&P 500 opened lower by 48.31 points, or 1.47 per cent, at 3,247.16. The Nasdaq Composite dropped 222.45 points, or 2.39 per cent, to 9,092.46 at the opening bell.
The death toll from the virus in China now stands at 81 people and Beijing has extended the Lunar New Year holiday by three days in an effort to contain the virus, which has spread to 10 countries.
“The market selloff that everyone was waiting for is here,” OANDA senior analyst Edward Moya said. “The U.S. stock market rally was overextended, and investors will use the coronavirus epidemic as the trigger needed to deliver a pullback.”
“This week should have been all about earnings season as we will see Apple report on Tuesday, Microsoft and Facebook post results on Wednesday, Thursday sees numbers from Amazon and Verizon, and Caterpillar and Exxon close things out on Friday,” Mr. Moya said.
Safe-haven holdings like Treasurys and the Japanese yen advanced as investors sought shelter. The CBOE Volatility index rose to its highest since November.
“Before the coronavirus situation broke out, stock markets in Europe as well as the U.S. were in a strong position,” CMC Markets analyst David Madden said. "...Some traders were questioning the lofty valuations of stocks, so now the fear surrounding the health crisis has acted as an excuse to take money off the table.:
On Wall Street, shares of home builder DR Horton were up nearly 3 per cent after the company raised the upper end of its forecast for the year. The company said it now expects 2020 home sales to be between 60,000 and 61,500 units, compared with its previous range of 60,000 to 61,000 homes.
Overseas, major European markets were deep in the red. The pan-European STOXX 600 was down 2.10 per cent by afternoon with all main sectors underwater. Resource stocks were among the biggest losers. Britain’s FTSE 100 fell 2.23 per cent. Germany’s DAX fell 2.42 per cent and France’s CAC 40 lost 2.41 per cent.
In Asia, Japan’s Nikkei ended down 2.03 per cent. The broader Topix fell 1.61 per cent. Markets through much of the rest of the region were closed for public holidays.
Commodities
Crude prices sank as traders struggle to assess the potential impact of the virus on global demand.
The day range on Brent so far is US$58.52 to US$60.49 a barrel. The range on West Texas Intermediate is US$52.15 to US$53.71. Both benchmarks were down roughly 3 per cent at one point in the predawn period. Brent crude fell below US$60 a barrel for the first time in almost three months.
“Oil sold off aggressively last week on concerns about the impact on China’s economy of the outbreak of a SARS-like virus,” AxiTrader strategist Stephen Innes said. “Brent was down close to 6 per cent on the week as traders moved quickly to price in a worst-case scenario around China’s travel and transportation demise.”
Now, he said, traders are facing the impossible task of trying to assess the potential global impact as the virus spreads.
“Since the ‘Wu-Flu’ incubation period is estimated at between five days and two weeks, we’ll need to assess the true extent of the damage after the Lunar New Year holiday, so I suspect the balance of oil markets demand devastation risk remains on the wobble until then,” Mr. Innes said.
Meanwhile, Reuters reports that Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud said on Monday that OPEC and allied global producers led by Russia can help to balance the oil markets in response to any demand changes. He also said the Kingdom was watching developments in China and that he felt confident the new virus would be contained, according to the news agency.
Markets are being “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite (the virus’) very limited impact on global oil demand,” the minister said, adding that the outbreak of the SARS virus in 2002-2003 did not lead to a significant reduction in oil demand.
Gold prices, meanwhile, hit their highest level in two weeks as investors moved to safer holdings.
Spot gold climbed 0.5 per cent to US$1,577.93 per ounce. Earlier, prices gained as much as 1 per cent to their highest since Jan. 8 at US$1,586.42. U.S. gold futures rose 0.3 per cent to US$1,576.50.
“The continuation of the gold rally will rely on developments for good, or for ill, of the Wuhan virus situation,” Jeffrey Halley, senior market analyst, OANDA, said in a note.
“From a resistance point of view, the next level to watch is $1,600 an ounce.”
Currencies
The Canadian dollar was weaker, trading below 76 US cents at last check, as oil prices slumped and investors moved away from riskier assets.
The day range on the loonie so far us 75.81 US cents to 75.08 US cents. Monday morning’s declines came as other commodity linked currencies like the Australian dollar also struggled on exchange markets.
“Markets have a risk off tone to start the week,” Elsa Lignos, global head of FX strategy, said in a note. “While some analysts argue the fear will be worse than reality with the coronavirus (pointing to the low mortality rate), no one is anticipating a Spanish flu repeat – the bigger worry is the economic impact of containment and quarantine strategies, particularly in China.”
For the Canadian dollar. the week’s main event comes on Friday with the release of the November GDP figures. The report comes a week after the Bank of Canada shifted to a more dovish tone, which some economists say leaves the door open for an interest rate cut as early as April.
Ms. Lignos says RBC’s economists are expecting a relatively flat reading on growth in November, forecasting an increase of just 0.1 per cent for the month.
“There are several (downside) factors at play in the month including rail and pipeline disruptions and lower oil/gas extraction,” she said. “The CN rail strike hit shipments in the month, but manufacturing GDP should be about flat due to an inventory build.”
On world markets, Japan’s yen, viewed as a safer holding, touched its best level since Jan. 8. The yen rose to as high as 108.73 yen per U.S. dollar but quickly gave back much of its rise and was last up just 0.1 per cent at 109.12 yen.
The offshore Chinese yuan shed 0.6% to 6.9783 yuan per dollar, its weakest since Dec. 31.
The U.S. dollar index, which weighs the greenback against a group of world currencies, was flat on the day at 97.857.
More company news
Stelco Holdings Inc. said Monday that Alan Kestenbaum, will return as the company’s chief executive officer, effective Feb. 21, 2020, at which point David Cheney will be stepping down and returning to Bedrock Industries. Mr. Kestenbaum previously served as Stelco’s CEO from the closing of Stelco’s initial public offering to February 2019 and is currently acting as Stelco’s executive chairman.
Online mattress retailer Casper Sleep Inc said on Monday it aims to raise up to US$182.4-million in its U.S. listing. The company plans to sell 9.6 million shares, including the underwriters’ option, at between US$17-$19 per share. The top end of the range values the company at US$768.2-million, below the US$1.1 billion valuation that it achieved in March last year.
Sorrento Therapeutics Inc said on it had rejected a proposal by a private equity fund for a majority or all of its outstanding shares that had valued the drug developer at as much as US$993-million. Shares of the company fell 7.5 per cent in premarket trade. Sorrento said the proposal of up to US$7 per share received earlier this month undervalued it and was not in the best interest of its shareholders.
U.S. state attorneys-general will meet with Justice Department attorneys to share information on their investigations into Alphabet Inc’s Google, that could eventually lead them to join forces, the Wall Street Journal reported on Sunday, citing people familiar with the matter. The investigations have centred around monopolistic behaviour that may harm consumers through Google’s control of online advertising markets and search traffic. The meeting between the parties is seen as the start of a periodic dialogue that could expand into more formal co-operation as the probes continue, according to the newspaper.
Economic news
(10 a.m. ET) U.S. new home sales for December. The Street projects an annualized rate rise of 1.5 per cent.
With Reuters and The Canadian Press
Terry Weber