Business Essentials for Professionals


Coronavirus Continues To Be A Cause Of Concern For Traders Of Stock Markets

Coronavirus Continues To Be A Cause Of Concern For Traders Of Stock Markets
The broader economic fall out of the coronavirus have kept investors worried which has resulted in sharp fall in the global stock markets.
There was a 3 per cent drop in London's FTSE 100 share index as well as similar falls in the other stock markets in Europe. Investors in the United States were not swayed by the upbeat data on hiring and unemployment. There was a loss of almost 1 per cent in the Dow Jones Industrial Average at the close of markets on Friday while there was a 1.8 per cent drop in the value of the Nasdaq slumped 1.8% and a 1.7 per cent fall in the S&P 500 at the end of trading for the week.
273,000 jobs were added in the US in February according to the monthly report released by the US Labor Department which was significantly higher than the market expectations. At the same time the rate of unemployment dropped to 3.5 per cent – a 50-year low.
Estimates of job gains in January and December were also revised up in the report as 85,000 more jobs were added pot the tally than what had been reported previously.
However the catch is that the survey reports were compiled before the outbreak of coronavirus in the US and other parts of the world outside of China. Since the surveys were conducted, there has been a sharp drop in global travel while there has been disruption in work, school and shopping in many countries because of the coronavirus outbreak.
The strong data in the US had little effect on the investors who seemed more concerned about the economic impact of the virus outbreak. "Today's jobs report is old news," said Sarah House, senior economist at Wells Fargo.
Mark Hamrick, senior economic analyst for said that the economic strength of the US as signaled in the report is a "little like the saying, the car was in fine condition before being involved in a collision". "The new reality, amid tremendous uncertainty, is the world has experienced a seismic shift," he said.
There were major falls in Asian markets throughout the week as well – which continued before the weekend closure with the Nikkei index of Japan falling by 2.7 per cent.
A 3.6 per cent fall in the FTSE 100 erased the gains hat the index had made seen earlier in the week on the index.
Some of the steepest falls were seen in the travel companies as expected. Another sector to be hit was the banking sector as there were concerns about anticipated cuts in interest rates so that borrowing was made cheaper for companies and consumers in order to retain buoyancy in economies. There was also pressure on energy stocks after the break down of the talks between major oil producers to bring down crude production further which resulted in a drop in 8 per cent in global oil prices.
"The markets didn't even bother with the pretence of a calm start on Friday, bringing another rough week to a close," said Connor Campbell, analyst at financial spread better Spreadex. "The week's various central bank rate cuts only served to reinforce the seriousness of the situation."
The United States’ Federal Reserve cut its benchmark interest rate by 0.5 percentage points earlier this week to put it in a range of 1 per cent to 1.25 per cent in order to address concerns of investors. There are predictions that the Fed will cut rates further with some analysts predicting a cut as early as this month when the Fed meets. 
Investors who are seeking some safer investment tools turned to government bonds which sent their prices higher.
Tradable loans to governments and businesses are included in the bond market - which is many times larger than the stock market. With the rise in the price of the loan, there is a drop in the yields – which is how much investors will recoup in interest from the loans.
"With the 10-year Treasury yield slumping to a new record low and stock markets under pressure again today, it is questionable whether the Fed can wait until its scheduled meeting mid-month to deliver the next rate cut," said Paul Ashworth, chief US economist at Capital Economics.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc