Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors around the globe are focused on one question today — how serious is the Wuhan coronavirus outbreak, and what impact will it have on the global economy?
Global equities suffered sharp losses on Monday, with Britain’s FTSE 100 plunged over 2% – its worst day since October. Wall Street followed, losing 1.5% as traders fretted that the virus could become a SARS-like epidemic proportions.
Overnight, the death toll from the virus hit 106, with more than 4,515 cases of the illness now been recorded across China. The first death has been reported in Beijing, highlighting how the virus has spread beyond the city of Wuhan.
This has prompted losses in some Asia-Pacific market today, particularly in markets which were closed on Monday. South Korea’s KOSPI 200 index has been badly buffeted, losing 3% during Tuesday’s session, while Australia’s S&P/ASX 200 shed 1.35% , with tourism, consumer and mining stocks leading the charge downwards.
Australia’s economy is tightly linked to China, providing the coal and iron ore needed to sustain the Chinese economy. But it’s hard to assess quite how much economic damage coronavirus could cause.
My colleague Ben Butler reports:
“We haven’t got enough information,” the economist and former Reserve Bank board member Warwick McKibbin said.
McKibbin has previously estimated that a “mild” pandemic in Asia, such as the 1968 Hong Kong flu outbreak which killed about 1m people, would carve 0.8% from Australia’s gross domestic product, with most of the damage felt in the services sector.
And in a 2004 paper co-authored with the World Health Organisation, he estimated the 2003 Sars outbreak, which killed about 800 people, cut Australian GDP by 0.07%.
China’s stock markets remain closed for the Lunar New Year – preventing traders in Shanghai, Shenzhen or Beijing from selling stocks.
Europe’s stock markets may recover today – the FTSE 100 just opened 38 points higher (having lost 173 on Monday). But any signs that the virus is spreading faster or claiming more lives could send stocks down again.
Part of the problem, bluntly, is that pneumonia pandemics aren’t well understood in the City. Investors have been swotting up fast about incubation times, mortality rates and infectious control — but it’s still hard to plug this public health crisis into a classic trading mode.
As Neil Wilson of Markets.com puts it:
The problem is investors have very limited visibility of the current situation in China, have virtually zero knowledge of epidemiology and virology, and have no clue how bad it will get or lasting the impact will be.
Risk models are not geared for this situation.
Here’s a pithier take:
Also coming up today
A new healthcheck on Britain’s retail sector is expected to show a pick-up in spending this month, as confidence rises following December’s general election.
New economic surveys from the US could show a rise in durable goods orders, and consumer confidence. However, such data could soon be overtaken by concerns over the coronavirus.
- 11am GMT: CBI index of UK retail sales for January. Forecast to rise to +4. from 0
- 1.30pm GMT: US durable goods orders for December. Forecast to rise by 0.9%, from -2.1%
- 3pm GMT: US consumer confidence index for January. Forecast to rise to 128.0, from 126.5