Virus ripples through travel, energy, financial markets

A nd back down goes the US stock market.

The S&P 500 sank more than two per cent in early trading Thursday, and Treasury yields fell towards more record lows as the market swung back to fear about the effects of a fast-spreading virus.

Just a day earlier, stocks had soared, in part on hopes that more aggressive moves by governments and central banks around the world could help contain the economic fallout.

Get used to such vicious swings, which will likely keep going as long as the number of new infections continues to accelerate, many analysts and professional investors say. The S&P 500 has had four straight days where it has lurched by at least two per cent in either direction, something that hasn’t happened since 2011.

In China, where the number of new infections has been slowing drastically, Shanghai-traded stocks have rallied nearly 12 per cent since hitting a bottom on February 3. They’re just 1.6 per cent away from wiping out the last of the losses they’ve sustained since the new virus began to spread late last year.

Factories in China are gradually reopening, and a return to a sense of normal life may even be on the horizon following swift and severe actions by the government to corral the virus.

But elsewhere in the world, the mood is much darker. There are about 17 times as many new infections outside China as in it, according to the World Health Organization. Widening outbreaks in South Korea, Italy and Iran are responsible for the majority of new infections.

In the travel sector, an industry group says the spreading coronavirus could cost airlines as much as US$113 billion in lost revenue. That figure, released Thursday, is four times the number released just two weeks ago by the International Air Transport Association, IATA, which is imploring governments for assistance. The group says the industry urgently needs help in waiving some requirements and fees.

The struggling British airline Flybe collapsed on Thursday as the outbreak quashed ticket sales. The British regional airline narrowly avoided bankruptcy in January, but the spread of the coronavirus sealed its fate.

Smaller carriers are particularly at risk. The low-cost carrier Norwegian Shuttle cancelled 22 long-haul flights between Europe and the United States from late March to early May. The national carrier Finnair is laying off its entire staff based in Finland for two weeks to a month due to the economic impact of the outbreak.

More companies are reporting workers with infections in the United States. Facebook says it’s temporarily closing a Seattle office after a worker was diagnosed with the virus. The last time the employee came to the social network’s Seattle office was February 21, so Facebook said the office will remain closed until Monday, when the incubation period ends. The company is heeding guidance from local authorities, however, and is encouraging Seattle staff to work from home until March 31.

Amazon this week said one of its employees in Seattle, and two in Milan, Italy, had contracted the coronavirus. All were quarantined.

In the energy market, the oil-producing countries of the OPEC cartel are considering slashing output to contain a price plunge intensified by the virus outbreak.

Air travel has plunged since the outbreak emerged in China, sapping demand for jet fuel. Manufacturing has been idled in China as cities with millions of residents locked down to contain the spread of the virus. Major companies around the world have halted business travel out of precaution.

Oil prices stabilised ahead of this week’s meeting on expectations that OPEC and non-OPEC members would agree to deeper production cuts. Crude prices have fallen 25 per cent since January.

Meanwhile, market volatility continued Thursday. After a huge swing into positive territory on Wednesday, Dow futures tumbled almost 500 points.

The Chicago Board Options Exchange Volatility Index, or VIX, climbed close to 36 Thursday. The VIX is also called Wall Street’s fear barometer. It’s been striking levels not seen in almost a decade in recent weeks.

European markets quickly gave up early gains as Wall Street tumbled, with France’s CAC 40 down two per cent at 5,357. Germany’s DAX shed 1.9 per cent to 11,897. Britain’s FTSE 100 was down 1.8 per cent to 6,697.

The S&P 500 was down 2.3 per cent, as of 10:35 a.m. Eastern time. The Dow Jones Industrial Average fell 684 points, or 2.5 per cent, to 26,406, and the Nasdaq was down 1.8 per cent.

“The Western world is now following some of China’s playbook, closing schools and declaring a state of emergency for example, but there is a sense that this is too little, too late,” said Chris Beauchamp, chief market analyst at IG.

Travel-related companies continued to fall sharply on worries that frightened customers won’t want to confine themselves in planes, boats or hotels with others. Royal Caribbean Cruises sank 12 per cent, American Airlines Group lost 8.7 per cent, and MGM Resorts International fell 7.2 per cent.

American congressional leaders reached a deal on a bipartisan US$8.3-billion spending bill to battle the coronavirus outbreak, and the Bank of Canada followed up on the US Federal Reserve’s surprise cut to interest rates the day before with its own.

Healthcare stocks got a particularly big boost after victories by Joe Biden in state primaries launched him into contender status for the Democratic presidential nomination with Bernie Sanders. Many investors see Sanders’ healthcare plan as damaging to the industry’s profits.

However, several measures of fear in the market clenched tighter. The yield on the 10-year Treasury sank to 0.94 per cent from 0.99 per cent late Wednesday. Shorter-term Treasury yields fell as traders increase bets for more rate cuts by the Federal Reserve to try to limit the economic damage. The two-year Treasury yield fell to 0.58 per cent from 0.62 per cent.

Crude oil held relatively steady after OPEC members proposed a deep cut of production to shore up prices. Benchmark US crude slipped 13 cents to US$46.65 per barrel. Brent crude, the international standard, slipped 37 cents to US$50.76 per barrel.

AP