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Global Stocks Drop Amid Outbreak of Deadly Virus in China

Global stocks dropped on Tuesday, led by Asian markets, amid concerns about the rapid spread of a potentially deadly pneumonialike virus originating in central China.

Futures tied to the Dow Jones Industrial Average edged down 0.2% after the public holiday on Monday. The pan-continental Stoxx Europe 600 index dropped 0.6%. The Shanghai Composite closed 1.4% lower in its biggest drop in over two months, while the Chinese yuan lost 0.5% against the dollar in offshore trading.

The newly identified virus has spread between humans, a leading Chinese health official said, fueling concerns that the disease could quickly be transmitted across Asia as millions of Chinese travel for the annual Lunar New Year holiday. The virus has already claimed four lives as the number of confirmed cases tripled on Monday. A similar coronavirus led to the outbreak of severe acute respiratory syndrome, or SARS, in late 2002 in southern China, killing 774 people.

“The economic consequences could be extremely concerning,” said Rajiv Biswas, chief economist for the Asia-Pacific region at IHS Markit. “China’s international tourism has boomed, so the risks of a global SARS-like virus epidemic spreading globally have become even more severe.”

Shares of airlines, cinemas and restaurant operators were the biggest losers in the Chinese market as investors tried to decipher the impact of the disease in the region. Japan’s Nikkei 225 benchmark also fell 0.9%.

Hong Kong’s Hang Seng benchmark was the worst performer among major Asian benchmarks, closing down 2.8% in its biggest decline in over five months. Adding to the gloom in Hong Kong, Moody’s Investors Service downgraded the city’s credit rating. The ratings firm blamed the government for failing to properly deal with seven months of social unrest, which has driven the economy into recession.

Apart from the Chinese yuan, other Asian currencies also fell against the U.S. dollar on fears that tourism and Asian economies could be adversely impacted if there is a widespread outbreak of the virus. The South Korean won slid 0.6% against the U.S. dollar and the Taiwan dollar lost 0.2% against the greenback.

“Global asset markets have been pricing in this blue-sky scenario: there wasn’t a cloud in the sky,” said Cliff Tan, East Asian head of global markets research at Japanese bank MUFG. “Now we have a cloud.”

Ahead of the opening bell in New York, shares in U.S. airlines fell with Delta Air Lines losing 2.4% in premarket trading and American Airlines Group dropping 2% on worries that the virus could hurt the tourism industry. United Airlines Holdings retreated 1.9%.

In Europe, International Consolidated Airlines Group, which owns British Airways, dipped 4%.

Major market moves among other European equities were largely driven by corporate results. Hugo Boss ticked up 6% after the German fashion house’s sales in the fourth quarter exceeded analysts’ expectations, buoyed by momentum in Europe and China. EasyJet gained 4.4% after the budget airline posted higher-than-expected revenue for the fiscal first quarter and boosted its forecast for revenue per seat for the first half of the year.

Among the biggest losers was UBS Group, which retreated over 5% after the Swiss banking giant missed its key 2019 targets and lowered its guidance.

Later in the day, a string of U.S. companies are scheduled to report earnings including Netflix and International Business Machines Corp.
Source: Dow Jones

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