Coronavirus fears trigger biggest one-day fall on
US stock market
Dow plunges 1,190 points as analysts say virus
could inflict as much damage as 2008 crisis
Rob Davies
, Richard Partington and Graeme Wearden
Thu 27 Feb
2020 21.42 GMTFirst published on Thu 27 Feb 2020 13.27 GMT
Fears over
the spread of coronavirus have prompted a record plunge in the US stock market,
as analysts warned the outbreak could wreak economic havoc on a scale not seen
since the 2008 financial crisis.
The Dow
Jones industrial average suffered its worst one-day fall – 1,190 points –
losing 4.4%, as fears of a global pandemic hit investor confidence.
The FTSE
100 slumped by 3.5%, extending a losing streak that puts the blue-chip share
index on course for its worst week since the eurozone debt crisis in 2011.
Thursday’s
slump in financial markets came as countries stepped up efforts to contain the
virus by banning travel, closing schools and postponing major sporting events
and business conferences.
British
officials sought to prepare the public for all eventualities. The chief medical
officer, Chris Whitty, said that in the event of a global pandemic public
events may have to be cancelled and schools closed for more than two months.
As three
new cases were identified in the UK on Thursday, including the first in
Northern Ireland, and Public Health England sent a specialist to Tenerife to
help manage an outbreak there, the health secretary, Matt Hancock, said there
was still “a good chance” of avoiding a pandemic but he acknowledged it was a
“potential outcome”.
The value
of London-listed companies has fallen by more than £150bn since markets opened
on Monday, a prolonged selloff widely attributed to Covid-19.
As well as
being the Dow’s worst points fall ever, the index’s 4.4% drop was its worst
percentage fall in two years. Meanwhile the tech-focused Nasdaq index tumbled
by 4.6%, its worst daily loss since 2011.
Scott
Minerd of financial services firm Guggenheim Partners told Bloomberg TV that
the coronavirus outbreak “is possibly the worst thing I’ve ever seen in my
career”, a time-span which includes the 1987 crash and the collapse of Lehman
Brothers.
“This has the potential to reel into something
extremely serious,”
Minerd warned.
“It’s very hard to imagine a scenario where you can
actually contain this, and so that’s the thing that to me is very frightening.”
A flurry of
big names joined the lengthening list of companies reporting a serious impact
on their finances and warning of further pain ahead if the outbreak’s progress
cannot be halted soon.
Microsoft, PayPal and Standard Chartered all forecast
disappointing profits.
Facebook cancelled its annual developer conference in
California where the company usually unveils new products to thousands of
software engineers and entrepreneurs.
Goldman Sachs warned coronavirus could wipe out profit
growth at US companies in 2020.
Aston Martin predicted falling sales and warned of
disruption to its supply chain.
Property firms pulled out of the industry’s annual
Mipim conference, due to take place in Cannes next month.
Budweiser beer owner ABInBev reported a $170m hit to
profits.
Advertising firm WPP quarantined staff returning from
Asian countries.
Cosmetics firm L’Oréal banned travel for its 86,000
staff.
Shoemaker Crocs said Asian disruption would cut its
revenues by up to $30m.
Some of the
world’s best-known brands such as Apple, McDonalds and Starbucks have already
counted the cost of the outbreak, while entire industries such as tourism,
aviation and the automotive sector are struggling to cope with disruption.
Analysts
are now warning that the combined effect of the virus and measures put in place
to prevent its spread could weigh heavily on the global economy.
According
to the consultancy Capital Economics, the outbreak turning into a full-blown
international pandemic would trigger severe upheaval for world trade, markets
and currencies on a par with the financial crisis, when global GDP fell by
0.5%.
Jennifer McKeown,
head of its global economics service, said there was still hope that the
outbreak could be contained, with limited negative impact for businesses and
countries.
However,
she said: “One thing becoming clear is we just can’t predict the spread of this
and how bad it can be. But it’s not difficult to get to something similar to
the 2008 crisis with a pandemic situation. Of course, we hope it won’t get that
bad.”
Central
banks around the world would be all but powerless to mitigate the economic
effect of so much business grinding to a halt, according to the Bank of
England’s deputy governor Jon Cunliffe. “If it’s a pure adverse supply shock,
there is not much monetary policy can do,” he said.
A supply
shock is when there is disruption to production of goods and supply of services
– such as shops and factories closing down. Monetary policy cannot keep them
open.
On
Wednesday night Donald Trump hailed “tremendous success” in tackling the virus,
but Janet Yellen, a former chair of the Federal Reserve, later said the
American economy could be driven into recession.
Goldman
Sachs appeared to lend weight to her warning, predicting that US companies
could record zero earnings growth this year if coronavirus spreads much
further.
The price
of oil tumbled to a 13-month low on expectations of reduced economic activity,
while City investors rushed to buy assets seen as safe havens in times of
turmoil, such as government bonds.
Supply
shortages from manufacturers in China, where factories have been closed in an
attempt to control the disease, have already combined with sharp decline in
consumer demand to trigger a string of corporate profit warnings.
Demand for
disinfectants such as Dettol and Lysol has soared, according to the household
goods firm Reckitt Benckiser. However, the UK firm, which also makes brands
including Nurofen, Durex and Finish, said it was seeing disruption at retailers
and in distribution and supply chains.
Microsoft
said supply chain disruption would affect its PC business, meaning it would
miss sales forecasts, while PayPal predicted revenues at the bottom of its
expected range.
Aston
Martin, which is already struggling to reverse deepening losses, warned of an
impact on sales and supply chains, pointing out that China has been its
fastest-growing market.
The
property industry is gearing up for its annual Mipim conference in the south of
France next month, with organisers insisting it will go ahead as planned. But
the pledge was cast into doubt after major real estate players including Land
Securities, Cushman and Wakefield, Savills and Knight Frank pulled out amid
concern about the possibility of contagion at large gatherings of people.
ABInBev
reported that it had already suffered a $170m dent in profits during the first
two months of 2020, echoing a damage report issued by fellow drinks maker
Diageo this week. Diageo, which makes Johnny Walker and Guinness, said it faced
a profits hit of up to £200m in its Asian markets.
L’Oréal has
banned travel for its 86,000 staff until at least the end of March.
The tour
operator TUI, British Airways owner IAG and easyJet were among the
worst-performing UK shares due to concern about cross-border travel and
tourism.
The
Asia-focused bank Standard Chartered, which is listed in London, said it would
miss its financial targets this year but it was too early to predict the total
cost of the coronavirus outbreak.
Many major
banks could come under severe pressure if companies struggle to repay loans at
a time when debt levels have surged beyond the previous peak seen before the
financial crisis, hitting a record level of $188tn.
The
International Monetary Fund has repeatedly sounded the alarm over surging
global debt levels and the fragility of the financial system, particularly in
China, where it warned that as much as 40% of corporate debt would be
impossible to refinance in the event of a downturn just half as bad as the 2008
crash.
Recent
central bank stress tests in China indicated that as many as 17 out of 30 big
banks in the country would fail if economic growth slowed to 4.15%. Growth in
the world’s second biggest economy dropped to 6.1% last year, the weakest pace
since 1990, as the US-China trade war hit demand for goods and services.
Capital
Economics said growth in China could fall to 3% this year under the best-case
scenario for the country. Should the impact for the world economy remain
limited, it said global growth would slow to 2.5% this year, down from its
previous estimate of 2.9%.
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