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Excerpt: "The Dow plunged more than 1,000 points and global markets reeled as coronavirus cases spiked outside China, intensifying fears that the outbreak was barreling toward a pandemic, with devastating and potentially lasting consequences for the world's economy."

Workers spray disinfectant at the National Assembly in Seoul after it was discovered that a person who took part in a discussion session on 19 February at the Assembly has tested positive for the novel coronavirus. Parliament said that disinfection will be carried out in stages until 26 February. (photo: Yonhap/EPA-EFE/REX/Shutterstock)
Workers spray disinfectant at the National Assembly in Seoul after it was discovered that a person who took part in a discussion session on 19 February at the Assembly has tested positive for the novel coronavirus. Parliament said that disinfection will be carried out in stages until 26 February. (photo: Yonhap/EPA-EFE/REX/Shutterstock)


US and Global Markets Plunge as Coronavirus Cases Spike Outside China

By Rachel Siegel and Thomas Heath, The Washington Post

24 February 20


The Dow, S&P 500 and Nasdaq are in steep decline — 3.4 percent or more — as the deadly outbreak expands in South Korea, Italy and Iran

he Dow plunged more than 1,000 points and global markets reeled as coronavirus cases spiked outside China, intensifying fears that the outbreak was barreling toward a pandemic, with devastating and potentially lasting consequences for the world’s economy.

The three major U.S. indexes were deep in the red at midday, with the Dow Jones industrial average off nearly 3.5 percent; the Standard & Poor’s 500 index down 3.3 percent; and Nasdaq falling nearly 3.8 percent. With all 11 stock market sectors flashing negative, Wall Street was on pace for its worst day since August.

In Europe, slumps in the travel and luxury sectors sent Britain’s FTSE 100 tumbling 3.5 percent and Germany’s DAX sliding 4 percent. In Asia, Hong Kong’s Hang Seng Index dropped nearly 1.8 percent while the Nikkei 225 slipped 0.4 percent.

“This has all the makings of a great big disaster where stock investors shoot first and think later,” Chris Rupkey, the chief financial economist at MUFG Union Bank, wrote in a note to investors. “It looks like panic selling for now unless the central bank sheriffs ride into town. It used to be if America sneezed the rest of the world caught a cold. That’s been changed literally overnight from Friday’s close where now it’s if China sneezes the world economy should be bracing for a big fall.”

Gold, a safe haven in times of turmoil, climbed 1.6 percent to $1,675 an ounce. Brent crude, the global benchmark, skidded 5.4 percent on worries the outbreak will subdue demand for months to come. China is the world’s largest energy consumer, but it has been buying less crude amid virus-related travel restrictions. Meanwhile, major oil producers have yet to reach a deal on emergency measures to scale back output. The drop in oil prices will ramp up pressure on OPEC — the Organization of the Petroleum Exporting Countries — and Russia to reduce oil supplies at an upcoming meeting in March.

U.S. stock markets ended last week in decline, with the tech-heavy Nasdaq shedding 1.79 percent on Friday. Technology stocks like Apple, Amazon and Google parent Alphabet were hit particularly hard. Meanwhile, the yield on the 30-year Treasury fell to an all-time low, suggesting investor confidence in the economy was on shaky ground.

Michael Farr, president of Farr, Miller & Washington, said that the Federal Reserve’s ability to tackle the economic turmoil “is very limited.” A reduction in U.S. rates won’t address the supply problem coming out of Asia, Farr said, or reopen shuttered schools and factories.

“The risk isn’t so much morbidity and mortality, but it is the risk of business slowdown and perhaps even recession, Farr said.

Still, some say it was only a matter of time before global markets reacted sharply, and all at once, to the outbreak.

“The bond market had been signaling danger while the stock market has been blithely climbing the wall of worry,” said Nancy Tengler, chief investment officer of Laffer Tengler Investments. “We expected a much stronger correction on the initial coronavirus news — stocks are due for a pullback, after all. If we get a proper correction as the virus spreads, we think this will be constructive for stocks in the long-run.”

The White House is preparing to request an emergency spending package from Congress to finance its response to the novel coronavirus outbreak and look for ways to mitigate its effect on manufacturing supply chains. The request could be sent in the next few days and could seek nearly $1 billion in funds, according to two of the people briefed on the planning.

From the White House and the campaign trail, President Trump often touts the economy’s strength, and he routinely points to the stock market as one of his administration’s top accolades. U.S. stocks have reached record highs, even in the face of ongoing trade uncertainty. Yet there are still worries that in the event of another downturn, the government and central bank won’t have as much leeway to boost the economy.

U.S. stocks have reached record highs despite ongoing trade uncertainty and other destabilizing like the coronavirus.

In a CNBC International interview that aired Monday, Treasury Secretary Steven T. Mnuchin said it would be difficult to “have strong predictions on the economic issues without being able to predict the health outcome.”

“I think we need another three or four weeks to see how the virus reacts until we really have good statistical data,” Mnuchin said.

On Monday, Chinese leaders postponed the National People’s Congress — the most prominent event on their political calendar — set for March 5. Beijing also reversed course after saying it would relax travel restrictions on the outbreak’s hotbed of Wuhan.

The Chinese government reported 409 new coronavirus cases and another 150 deaths by the end of Sunday. There are now more than 77,000 confirmed cases, with a cumulative death toll of more than 2,500.

Over the weekend, South Korea, Italy and Iran reported sharp increases in cases. Italy now has the largest known outbreak outside of Asia, with more than 200 confirmed cases and five deaths as of Monday. Officials there aren’t even sure how the virus arrived in the country. South Korea’s caseload climbed to 833. And a spokesman for Iran’s health ministry said that the death toll from the new coronavirus has risen to 12.

“Whatever optimism in the markets recently about the coronavirus resolving quickly has evaporated with the spread to South Korea and other countries,” said John Kilduff of Again Capital. “Demand for commodities of all stripes has cratered in China and aviation traffic is plummeting as well."

Early on, analysts had hoped that any economic fallout from the coronavirus would be contained to China, based on what happened in the wake of the 2002-2003 SARS outbreak. But today’s China is much more interconnected with the rest of the world, with supply chains on nearly every continent reliant on Chinese manufacturing and labor.

Now, economists and supply chain experts worry that the world’s economies will feel coronavirus’ sting for months, even if the spread is brought under control. Auto plants are running low on parts. Chinese tourists aren’t traveling the world, and American companies, already bruised from President Trump’s nearly two-year trade war with Beijing, face additional uncertainty. International airlines have suspended flights in and out of China, and many factories have yet to reopen since they shut down operations leading up to the Lunar New Year holiday.

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