Risk aversion crept back into markets on Wednesday, as the death toll from the Wuhan virus continued to rise.
At least a 132 are now dead, and the number of confirmed cases is approaching 6,000. The US and UK have asked citizens to avoid any non-essential travel to China, and it’s possible the US will ban air traffic into and out of the country. The UAE on Wednesday reported the first confirmed Mideast cases in a family traveling from Wuhan. The US evacuated citizens from the city on a charter plane, which will land in California.
“In economic terms, the global economy has become more integrated and intertwined since [the SARS outbreak]”, ING noted on Wednesday, adding that “global air traffic, is currently more than twice as big as in 2003 [and] contrary to 2003, when Chinese tourism was mainly inbound-oriented, Chinese tourists have become a significant driver of global tourism”.
The implications, the bank writes, are simple: “The speed of the virus spreading could be faster than in 2003, while at the same time the negative impact on global growth could also be higher than in 2003”.
US equities were poised to trade positive, though. Apple should open at a record after what, by most accounts, was a great quarter. Outside of equities, the haven bid is perceptible again. The yen rose and Treasury yields retreated Wednesday.
The dollar is at a seven-week high.
Hong Kong shares plunged in the catch-up trade after reopening following the holiday. The Hang Seng fell 2.8% for the second time in five sessions.
Hong Kong-traded Chinese shares, meanwhile, had their worst session since the October 11, 2018 meltdown.
Remember, equity weakness on virus scares usually doesn’t last, although the initial drawdown can be painful.
All eyes will be on Jerome Powell Wednesday. It’s far too early for the Fed to consider any kind of “response” to the virus outbreak, and Tuesday’s comeback rally on Wall Street as well as lower long-end yields, will allay fears of tightening financial conditions.
Nevertheless, Powell will be expected to play virologist in the presser, and folks will also be keen to know how the Fed is thinking about repo tapers and the next step for reserve management given likely T-bill scarcity going forward.