World’s stock markets see 10% of their value wiped off their screens this past week alone, amidst fears of a global pandemic by the coronavirus… This means more people will run to the USD dollar as safe haven, valuing the U.S. currency to a point hard for forex to be traded or consumers goods to be exported from the U.S. to the world. This tremendous loss has most economists in the super power countries speculating the start of a global recession.
U.S. stock indexes fell sharply again at the open on Friday as the rapidly spreading coronavirus outbreak raised the alarm for a possible global recession.
The Dow Jones Industrial average lost 463 points, or 1.8 percent, at the opening bell on Friday, and losses quickly widened to as much as 1,000 points, one day after the index’s biggest one-day point drop in history.
If the Dow closes down by more than 1,000 points on Friday, it would be the third time this week — and the second day in a row — that the index lost points in the four digits, something that had previously only happened twice in history.
Investors are reeling after virus fears wiped nearly $3 trillion off the combined market value of S&P 500 companies this week, with the index confirming its fastest correction in history in volatile trading on Thursday.
As the world prepares for a likely pandemic, an inversion of the U.S. Treasury yield curve deepened further in a clear sign of recession. All three main stock indexes are set to record their sharpest weekly drop since the global financial crisis in 2008.
‘This selling is a bit extreme for something that we don’t know enough about,’ said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York.
‘What I do know is that the coronavirus is not going to lead us into a financial crisis that is long lasting. It could put us in a technical recession but the real concern is does that recession cause the U.S. consumer to pare back on spending?’
Investors had been growing confident the disease that emerged in China in December might be under control. But outbreaks in Italy, South Korea, Japan and Iran have fueled fears the virus is turning into a global threat that might derail trade and industry.
Anxiety intensified Thursday when the United States reported its first virus case in someone who hadn’t traveled abroad or been in contact with anyone who had.
While the magnitude of the economic damage from the containment measures, which have crippled supply chains and hit business investment, remains unclear, analysts have sharply downgraded their outlook for growth and corporate earnings.
Traders are now pricing in an interest rate cut by the Federal Reserve as soon as next month, but many have expressed doubts about how this would mitigate the impact of the outbreak.
‘Lower interest rates will do next to nothing to counter a supply side shock like this one, and even the positive effects on demand are questionable if entire economies start going into lockdown,’ said Marios Hadjikyriacos, investment analyst at online broker XM.
Adding to worries, the Commerce Department’s data on Friday showed U.S. consumer spending rose less than expected in January, a loss of momentum that could be exacerbated by the outbreak.
On Thursday, the U.S. markets officially entered what is known as a correction, or a 10 percent decline from the recent peaks, which were reached just earlier this month.
Globally, some $6 trillion, or about 10 percent, has been erased from stock values as markets in Asia and Europe plunged on fears that the outbreak will shrivel corporate profits there. At their heart, stock prices are determined by expectations of a company’s future profits.
It followed a slew of warnings from companies that the virus outbreak would negatively affect their bottom line.
Apple and Microsoft, two of the world´s biggest companies, said their sales this quarter will feel the economic effects of the virus.
The world’s largest brewer, Budweiser maker Anheuser-Busch InBev, forecast a 10 percent decline in first-quarter profits after the outbreak hit beer sales in China during the Lunar New Year.
In a note to clients, Goldman Sachs said that it was forecasting zero growth in average corporate profits for the year.
Citigroup went even further in a note later on Thursday, saying that average earnings might even fall for the year.
‘Maybe even flat EPS is too optimistic,’ Citigroup analyst Robert Buckland said in a note published late on Thursday.
‘If the virus slows global economic growth to 2% in 2020, our models suggest global EPS could contract around 10%,’ he added.
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Source : Bloomberg and Intelprise