By Geoffrey Smith
Investing.com --- China extended the official new year holiday season, hoping to gain time to stop the spread of the coronavirus that has now claimed at least 80 lives. Oil prices plummeted again as the scale of the drop in Chinese demand became apparent. Stocks are set for heavy losses at the opening as market participants price in a big, if temporary, hit to Chinese GDP in the near term. A draft of John Bolton's memoir says President Donald Trump personally told him he wanted to tie military aid to Ukraine to an investigation into Joe Biden's son, but whether the Senate will accept the evidence is another matter. And Italian bonds surged after a regional election stopped the political momentum of the populist right-wing Lega party. Here's what you need to know in financial markets on Monday, 27th January.
1. China’s economy faces a big hit from the coronavirus
Beijing extended the week-long New Year holiday by another three days to give authorities more time to screen for new cases of the virus. Officials said at the weekend that patients can be infectious for up to 14 days before their symptoms show, making it harder to stop its spread.
In addition to widespread cancellations of public transport and new year celebrations, the authorities have also closed down movie theaters, theme parks and other centers at what is normally the busiest time of the year. Tourist arrivals at Macau, the country’s gambling capital, were down 80% on the year, Bloomberg reported.
The number of confirmed cases has risen to 2,744 at the time of writing, of which 44 were outside China, according to World Health Organization officials cited by the BBC. Four were in the U.S. The number of deaths has risen to 80. Over the last week, both figures have been rising at around 50% a day.
Most analysts still expect GDP losses to be temporary rather than permanent, although they warn that spillovers to the global economy may be bigger than in the SARS epidemic in 2003, when China accounted for less of world GDP.
2. Oil, iron ore lead risk-off move in global markets
Crude oil prices continued to fall as the market priced in widespread demand destruction from China’s measures to stop the spread of the virus. Public transport has been curtailed in many cities, and China’s Transport Ministry said at the weekend overall transportation was down 29% at the start of the holiday season. Flight movements were down 42%.
By 6:20 AM ET (1120 GMT), U.S. crude futures were down 3.3% at $52.38 a barrel, their lowest in three months, while Brent futures were down 3.3% at $57.90.
There was no visible support from the flare-up in Iraq at the weekend, as the U.S. signalled it will strike back at Iranian-backed militias in the country after a rocket attack on the U.S. embassy in Baghdad.
Base metals prices also tumbled, reflecting the outlook for an extended shutdown of Chinese factories. Iron ore prices fell 6.5% in Asia, while Nickel futures fell 2.7% and copper futures fell 1.9% in London.
3. Stocks set to gap lower at opening
U.S. stocks are set for heavy losses at the opening, as downward momentum builds following the worst week since August for the S&P 500.
By 6:20 AM ET, Dow 30 futures were down 424 points or 1.5%, having earlier hit a new low for the year, while the S&P 500 futures contract was down 1.5% and the Nasdaq 100 contract was down 1.9%, both having hit three-week lows earlier. European markets were all down by over 1% after morning trading in Europe.
This week will be the busiest of the current earnings season, with all of the big tech names reporting. However, the week gets off to a relatively gentle start, with the roster being led by DR Horton, Sprint, Whirlpool and Arconic.
Elsewhere on the calendar, NY Fed President John Williams'll speak at 9:30 AM ET but is unlikely to comment on monetary policy a day ahead of the Fed’s policy-making meeting. New home sales data for December are due at 10 AM.
4. Bolton drops Trump bombshell, but not in Congress
John Bolton, President Donald Trump’s Former National Security advisor, let it be known that Trump had told him he wanted to freeze military aid for Ukraine, already approved by Congress, until President Volodymyr Zelensky announced a criminal investigation into the son of Joe Biden.
Biden Sr. is Trump’s likeliest opponent in the presidential election later this year.
The claim, first reported by the New York Times, emerged from a draft of Bolton’s memoir circulating in Washington, and adds to the body of evidence tying Trump directly to the withholding of aid from a U.S. ally for personal gain.
However, it is far from certain that the claim will be admitted as evidence in Trump’s ongoing impeachment trial in the Senate. It is not even clear that Bolton will be called on to testify, given the trial rules laid out by Republican Senators last week.
5. Italian bonds leap as Salvini thwarted
Italian government bonds and bank stocks leaped after a stinging defeat for the right-wing alliance led by Matteo Salvini’s Lega party in regional elections at the weekend.
Despite an intense and expensive campaign, the Lega failed to wrest control of the region of Emilia Romagna from an alliance led by the center-left Democratic Party. The result slows the momentum of a party that has promised a more expansionary fiscal policy, risking a confrontation with the rest of the euro zone.
The yield on the Italian 10-year benchmark fell 18 basis points, while the spread between it and its German counterpart tightened by 15 basis points to 142, its lowest in nearly three months.
The rally also enabled Italian bank stocks to escape the general rout in stock markets.