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Coronavirus fears trigger biggest one-day fall on US stock market

Rob Davies , Richard Partington and Graeme Wearden
·11-min read
<span>Photograph: Ahn Young-joon/AP</span>
Photograph: Ahn Young-joon/AP

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.

ftse 100 this week

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.”

Related: Standard Chartered to miss growth targets amid coronavirus fears

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.

What is Covid-19 - the illness that started in Wuhan?

It is caused by a member of the coronavirus family that has never been encountered before. Like other coronaviruses, it has come from animals. Many of those initially infected either worked or frequently shopped in the Huanan seafood wholesale market in the centre of the Chinese city.

Have there been other coronaviruses?

Severe acute respiratory syndrome (Sars) and Middle Eastern respiratory syndrome (Mers) are both caused by coronaviruses that came from animals. In 2002, Sars spread virtually unchecked to 37 countries, causing global panic, infecting more than 8,000 people and killing more than 750. Mers appears to be less easily passed from human to human, but has greater lethality, killing 35% of about 2,500 people who have been infected.

What are the symptoms caused by the new coronavirus?

The virus can cause pneumonia. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. In severe cases there can be organ failure. As this is viral pneumonia, antibiotics are of no use. The antiviral drugs we have against flu will not work. Recovery depends on the strength of the immune system. Many of those who have died were already in poor health.

Should I go to the doctor if I have a cough?

UK Chief Medical Officers are advising anyone who has travelled to the UK from mainland China, Thailand, Japan, Republic of Korea, Hong Kong, Taiwan, Singapore, Malaysia or Macau in the last 14 days and who is experiencing a cough or fever or shortness of breath to stay indoors and call NHS 111, even if symptoms are mild.

Is the virus being transmitted from one person to another?

China’s national health commission has confirmed human-to-human transmission, and there have been such transmissions elsewhere.

How many people have been affected?

As of 20 Februrary, China has recorded 2,118 deaths from the Covid-19 outbreak. Health officials have confirmed 74,576 cases in mainland China in total. More than 12,000 have recovered.

The coronavirus has spread to at least 28 other countries. Japan has 607 cases, including 542 from a cruise ship docked in Yokohama, and has recorded one death. There have also been deaths in Hong Kong, Taiwan, France and the Philippines.

There have been nine recorded cases and no fatalities to date in the UK. As of 17 February, a total of 4,501 people have been tested in the UK, of which 4,492 were confirmed negative.

Why is this worse than normal influenza, and how worried are the experts?

We don’t yet know how dangerous the new coronavirus is, and we won’t know until more data comes in. The mortality rate is around 2% at the centre of the outbreak, Hubei province, and less than that elsewhere. For comparison, seasonal flu typically has a mortality rate below 1% and is thought to cause about 400,000 deaths each year globally. Sars had a death rate of more than 10%.

Another key unknown is how contagious the coronavirus is. A crucial difference is that unlike flu, there is no vaccine for the new coronavirus, which means it is more difficult for vulnerable members of the population – elderly people or those with existing respiratory or immune problems – to protect themselves. Hand-washing and avoiding other people if you feel unwell are important. One sensible step is to get the flu vaccine, which will reduce the burden on health services if the outbreak turns into a wider epidemic.

Is the outbreak a pandemic?

A pandemic, in WHO terms, is “the worldwide spread of a disease”. Coronavirus cases have been confirmed outside China, but by no means in all 195 countries on the WHO’s list. It is also not spreading within those countries at the moment, except in a very few cases. By far the majority of cases are travellers who picked up the virus in China.

Should we panic?

No. The spread of the virus outside China is worrying but not an unexpected development. The WHO has declared the outbreak to be a public health emergency of international concern. The key issues are how transmissible this new coronavirus is between people, and what proportion become severely ill and end up in hospital. Often viruses that spread easily tend to have a milder impact. Generally, the coronavirus appears to be hitting older people hardest, with few cases in children.

Sarah BoseleyHannah Devlin and Martin Belam

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%.