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China data portends more punishment for bruised stock markets

Economic IndicatorsFeb 29, 2020 04:16AM ET
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By David Randall, Lewis Krauskopf and April Joyner

NEW YORK (Reuters) - World stock markets should fall further on Monday after a record contraction in China's manufacturing and service sectors because of the coronavirus outbreak, illustrating the massive potential economic impacts of the epidemic for the rest of the globe.

The outbreak has already caused massive disruptions in industry, led U.S. equities to suffer their worst weekly selloff since the financial crisis and knocked trillions off the market value of global stocks.

The first proper glimpse of how much economic damage the outbreak has inflicted so far came from China, the world's second-largest economy where the epidemic began.

China's official Purchasing Managers' Index (PMI), a widely-watched measure of economic activity, fell to a record low in February, data showed on Saturday, with a worrying collapse in domestic and export orders and a contraction of the country's burgeoning service sector.

Investors believe the next few days will reveal whether the outbreak is accelerating in the United States, the world's biggest economy, how much the U.S. government is prepared to deal with an epidemic, and the economic damage in other countries. 

"Right now the market is saying that this is unbounded. We don't know what the limits are and we don't know where it's going to peak," said Graham Tanaka, chief investment officer at New York-based Tanaka Capital.

Stock markets globally lost about $5 trillion of value last week, as measured by the MSCI all-country index (MIWD00000PUS) that comprises stocks across 23 developed and 26 emerging markets.

The S&P 500 (SPX) shed 11% last week, entering correction territory, while the Dow (DJI) and the Nasdaq (IXIC) also registered their deepest weekly percentage losses since October 2008.

(GRAPHIC - Virus wipes out trillions off world stocks: https://fingfx.thomsonreuters.com/gfx/mkt/13/2546/2514/Pasted%20Image.jpg)

The February China PMI readings are the first snapshot of the economy's state since the start of the coronavirus outbreak that has killed almost 3,000 people in mainland China and infected about 80,000.

The data indicates the economic disruption from the virus could extend to the whole first quarter of 2020 since the outbreak has caused widespread transport curbs and required tough public health measures that have paralyzed economic activity.

Capital Economics estimates China's economy would contract outright in year-on-year terms this quarter, the first time since at least the 1990s.

"The worst China manufacturing PMI in history will shock the market on Monday," ING economists wrote.

"Covid-19 has not only stopped production but has also broken the supply chain of production,...." they said.

Investors are looking to the United States, where the outbreak and efforts to prepare for its possible spread have become political during a presidential election year.

The White House has played down the crisis and described the high level of news coverage as a ploy to hurt President Donald Trump's efforts to secure a second term.

"The next line in the sand is if we see cases expand in the U.S.," said Jack Janasiewicz, portfolio manager and strategist at Natixis Investment Managers Solutions.

Signs that Japan could cancel its 2020 Summer Olympics--after years of preparation and some $12 billion in investment--would be another unwelcome development, Janasiewicz said. 

The International Olympic Committee has said it is committed to holding the Games on schedule.

Tanaka, of Tanaka Capital, said he is closely watching the U.S. response, including whether the government has been able to secure more kits to test for the virus. 

He has trimmed his position in shares of Tesla Inc (O:TSLA) and sold all his energy sector holdings as crude prices plummeted. But he continues to hold airline stocks JetBlue Airways Corp (O:JBLU) and Alaska Air Group Inc (N:ALK) despite concerns about travel demand.

Others are looking to the government bond market, a popular destination for nervous investors. Yields on the U.S. 10-year Treasury note, which move inversely to prices, hit an all-time low Friday.

China data portends more punishment for bruised stock markets
 

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Comments (11)
Charles Kao
ckao Mar 01, 2020 6:11PM ET
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Bottom fishers could lose their boat this time.
David David
David9 Feb 29, 2020 9:48PM ET
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Don't believe the Fake News media here. They number one job is to frighten the public. This whole thing is overblown. Worldwide market will slow in a quarter, but from there we will see massive recovery to the upside and market will gained 20% when Santa comes to town.
Jstanthr Trader
Jstanthr Trader Feb 29, 2020 9:48PM ET
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Just wanted to let you know that you got me a smile after reading your great insight. :-)
akljsdf askldf
akljsdf askldf Feb 29, 2020 9:48PM ET
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happy to buy you a one way ticket to Wuhan
Richie Berg
Richie Berg Feb 29, 2020 7:46AM ET
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60% of China is not working. They will enter recession. Europe is going in to recession. Central banks have near zero or negative interest rates. The FED has seen what negative ranks have done to Europe, they are in a liquidity paralysis. All their cheap money leaves chasing interest rates here in treasuries. Big pain coming.
Michael Kahle
Michael Kahle Feb 29, 2020 6:49AM ET
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If it rises on Monday, it will be an artificial PPT pump. Be on your toes and for God's sake, stop bickering lol Were all in this together.
Chris Sundo
Chris Sundo Feb 29, 2020 6:17AM ET
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Ticker DIA punched a hole into the gap-down on Friday morning with a bullish candle in the last 10 minutes. So, a gap-up on Monday is likely.
Chris Yoakum
Chris Yoakum Feb 29, 2020 6:17AM ET
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That shift in the last 10 minutes was so telling for how market makers create the narative to feed retail investors and make their own liquidity.
Dee Mehta
DMFINANCE Feb 29, 2020 5:49AM ET
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Wake up guys monday could be grey if not black
greg mason
greg mason Feb 29, 2020 5:35AM ET
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The White House has played down the crisis and described the high level of news coverage as a ploy to hurt President Donald Trump's efforts to secure a second term has nothing to do with re-elction and everything to do with the health of humans on earth. Trump will be re elcted no matter what, this new virus is a tuff one on the economy , NO WORLD LEADERS CAN PUT AT BAY TILL CURE IS AVAILABLE...START PUMPING BILLIONS INTO PROTECTING HUMAN HEALTH, MEANING BIO COMPANIES THAT RESEARCH AND FIND THE CURE
greg mason
greg mason Feb 29, 2020 5:35AM ET
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Donald put one trillion into cures of disease not military ,Thank You
William Baker
William Baker Feb 29, 2020 5:25AM ET
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Priced in
Prakash Vishy
Prakash Vishy Feb 29, 2020 5:25AM ET
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maybe it is already in the price after the fall of last week
Mik Jiiii
Mik Jiiii Feb 29, 2020 5:08AM ET
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Monday down then up
Buzzy Jefferson
Buzzy Jefferson Feb 29, 2020 4:21AM ET
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I disagree. This is hype. Markets will rebound next week as rational people gain perspective.
 
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