By Geoffrey Smith
Investing.com -- The coronavirus spotlight turns to Korea, while risk-off predominates in global markets: stocks are moving lower, while gold and bonds are hitting new highs. Business surveys out of Europe suggests the economy is in better shape than feared, but the dollar is giving up little of its gains this week. Here's what you need to know in financial markets on Friday, February 21st.
1. A new phase for Covid-19 outbreak
As cases of the coronavirus appear to approach their peak in China, attention is switching to other countries.
Of particular concern is South Korea, where the number of confirmed cases has risen threefold this week to over 200, making it the largest cluster of cases outside China and the Diamond Princess cruise ship that is docked off Japan.
The BBC reported that the southern cities of Daegu and Cheongdo have been declared "special care zones". The streets of Daegu are now largely abandoned, it added. All military bases are in lockdown after three soldiers tested positive.
Chinese companies have already reported extensive shutdowns due to problems with their supply chains in China, but the spread of the disease in Korea and Japan, both countries with advanced health care systems and high population density, is likely to give a reliable indicator of how easily – or not - the outbreak can be contained outside China.
2. Chinese car sales plummet; yuan hits new 2020 low
The short-term impact of the virus continues to work show itself on the Chinese economy, pushing the Chinese yuan to a new low for the year at 7.04 to the dollar.
New car sales fell 92% on the year in the first two weeks of February, according to industry body data.
On Thursday, the International Air Transport Association had warned that the global airline sector would lose $29 billion in revenue due to the outbreak, the worst hit coming in China and the broader Asian market.
3. Dollar Takes a Breather After PMIs
The dollar has come off multi-year highs against developed market currencies, after stronger-than-expected business surveys out of Europe took the edge off fears about another global economic downturn.
The IHS Markit Composite purchasing managers index for the euro zone showed activity at its highest in six months, rising to a preliminary 51.6 from 51.3 in January.and defying expectations of a decline to 51.0. The U.K. composite PMI, meanwhile, also came in above expectations, staying at 53.3.
The pound and euro both came off this week’s lows in response. Sterling was trading at $1.2925 while the euro was back above $1.08 for the first time in three days.
The greenback continues to march higher against higher-yielding Asian currencies such as the Thai baht and Indonesian rupiah, as well as the Australian and New Zealand dollars, widely seen as proxies for Asian commodity demand.
4. Stocks set to open lower
U.S. stocks are set to open lower again as corporate warnings about the impact of the Covid-19 outbreak finally appear to sink in.
Following Apple (NASDAQ:AAPL), Procter & Gamble (NYSE:PG) warned on Thursday that its earnings would take a hit from supply chain disruptions and weak demand in China, its second-biggest market.
By 6:45 AM ET (1145 GMT), the Dow 30 futures contract was down 89 points or 0.3% while the S&P 500 Futures contract was down 0.3% and the Nasdaq 100 contract was down 0.4%.
The S&P is on course for its first weekly drop in three, after Goldman Sachs (NYSE:GS) warned on Thursday that stocks were exposed to a correction after their recent surge.
5. Gold surges on risk-off; Fed speakers eyed
After swinging both ways in the first half of the week, haven assets of all stripes are showing more consistent signs of strength.
Gold Futures hit a fresh seven-year high of $1,639.25 an ounce overnight, while Silver futures rose to their highest in over a month.
Government bond yields continue to move lower. Germany’s benchmark 10-Year yield hit a new four-month low of -0.46% overnight, moving up only one basis point after the PMIs. U.K. 10-Year yields have fallen 4 basis points this week despite data all but ruling out an interest rate cut from the Bank of England.
U.S. 30-Year Treasury yields, meanwhile, hit a new all-time low of 1.905% overnight, before retracing up to 1.92%.
There's another barrage of speeches from Federal Reserve officials due, with Raphael Bostic, Richard Clarida, Loretta Mester, Lael Brainard and Robert Kaplan all taking the microphone in the course of the day.