US and European markets reel from impact of outbreak

NEW YORK • Less than a week after global markets largely shrugged off a warning from Apple that the coronavirus was posing a bigger hit to sales and production than previously expected, US indexes finally imploded on Monday.

The S&P 500 index, which had reached a record high as recently as last Wednesday, fell 3.4 per cent, its worst single-day performance since February 2018. As analysts issued new warnings that the outbreak could drag down economies around the globe, stocks fell enough to wipe out all of the index's gains for this year.

It was a turbulent day for stocks worldwide: European markets recorded their worst session since 2016, and major benchmarks in Asia also closed down.

"There was a cavalier attitude about the virus," said Mr Bruce Bittles, chief investment strategist at Baird, an investment banking and money management firm. With the threats appearing to increase, he added, "you have to think about the global economy slipping enough to cause a shortfall in earnings".

Italy reported more than 200 cases and locked down 11 towns. Police and military forces were deployed to ensure that only people with special permission left or entered towns covered by the order.

South Korea, a major industrial centre, reported more than 230 new cases a day after its government said it was prepared to use emergency powers if necessary. And state-owned media in Iran reported that the virus had killed 12 people there - the highest death toll outside China.

"We knew for a while that it would slow Chinese growth and that it would have a negative impact on the global supply chain for any company that sources a lot of their input products from China, said FTSE Russell's managing director of global markets research Lec Young.

"What's new is that we're getting significant outbreaks in Italy, for example. The spread of the virus to Europe, the worsening situation in China but also now South Korea - which is also a major global export hub - it's ratcheting up the uncertainty... A lot of people were too dismissive of this too early."

In the United States, the Centres for Disease Control and Prevention said there were 53 people infected with the virus, up from 34 last Friday.

New pessimistic forecasts about the US economy began to emerge last week.

In a note on Friday, economists at JPMorgan Chase wrote that they expected global growth to slow to a 1 per cent annual pace in the first quarter, which would be the weakest quarter of the economic expansion that began after the deep recession that started 12 years ago.

Economists at Goldman Sachs, who were expecting first-quarter domestic growth of 2 per cent as recently as late last month, have been steadily lowering their estimate, which fell to 1.2 per cent on Sunday.

"The risks are clearly skewed to the downside until the outbreak is contained," they wrote.

NYTIMES, BLOOMBERG