A Sick Albatross.

Markets were back on defense Friday, as the “don’t panic” message from Thursday’s WHO press conference and whatever good vibes were engendered by Amazon’s results were overwhelmed by more ominous coronavirus headlines, including the first confirmed cases in the UK.

“Those currently in China should consider departing using commercial means”, the US State Department said, in an advisory which put China in the same travel warning category as Iran, North Korea and Venezuela.

China’s confirmed cases have risen to 9,809 up from 7,700 the previous day. In a testament to the severity of the situation, Bloomberg notes that “Australia plans to isolate its evacuees from Wuhan on Christmas Island, better known for its grim history as a detention center for would-be asylum seekers, while the US flew its citizens from the virus-stricken Chinese city to an isolated military base in California”. It’s funny – in a macabre kind of way.

Hong Kong schools will be closed until March, and travel warnings and other restrictions are becoming the norm rather than the exception globally, despite WHO’s exhortations from Thursday, when Director-General Tedros Adhanom Ghebreyesus explicitly said that travel and trade need not be affected as long as proper protocols are observed.

Overnight, China’s PMIs were decent, with the manufacturing gauge loitering right at the 50 demarcation line and the services gauge moving higher to 54.1, but the data is even more useless than it normally is – it doesn’t reflect the full impact of the virus, and besides, the 50.0 print on the manufacturing index marks a subtle deceleration, suggesting the world’s number-two economy is one lackluster month from seeing factory activity contracting again after two straight months of expansion.

Markets may well be ready to look ahead, but the ongoing surge in confirmed cases of the virus is going to make that more difficult.

That’s a rather trite observation, but the point is simply that in a headline-driven market, the incessant barrage of news containing a key word (e.g., “virus”, “tariffs”, etc.) is an albatross. This was the worst week for global stocks since August.

“The coming days could test investors’ risk appetite to the fullest”, Credit Agricole remarked. “We suspect that those dipping their toes back into risky assets are running the risk that the coronavirus outbreak could prove more persistent and thus have a greater negative growth impact than expected”. Goldman sees the US economy taking a 0.4% hit. That would push growth stateside markedly lower than 2%, and some see the outbreak pushing Chinese growth to just 4.5%.

You get the idea. For traders, the key thing to watch for is a spike in the number of person-to-person cases in major developed markets and/or reports of deaths outside China.

Either of those two developments (were they to materialize) would almost surely prompt immediate selling – or at least by the machines, which, of course, are immune to this kind of pathogen.