A rally in global stock market values, on hopes of a limited impact from the coronavirus crisis, has been stopped in its tracks following a surge in the number of reported deaths in China.
Traders said that news early on Thursday of a spike in cases in the centre of the outbreak was the tipping point for positive sentiment to turn sour – the FTSE 100 among those falling sharply.
Shares recovered from initial wobbles over coronavirus earlier this month with the help of Chinese stimulus aimed at preventing any market panic following the end of an extended Lunar New Year holiday.
The cash injections and moves by regulators in Beijing to prevent volatility improved confidence at a time when investors largely saw coronavirus as being slightly more serious than the SARS outbreak in 2003.
The policy response helped contribute to US markets reaching several fresh record highs.
But the surge in market values went into reverse on Thursday when 242 deaths were reported in a single day in Hubei province.
The region also confirmed that 48,206 cases of COVID-19, the strain’s official name, were now being treated.
The leap was partly explained by an improved method of detection but, traders said, it fostered greater uncertainty about how long the crisis was likely to persist and how deep the potential damage could be for the world economy.
While losses in Asia were muted as many indices had been recovering some lost ground, sentiment in Europe was sharply negative with the German DAX and CAC in France shedding more than 1% – though they later fought back to recover most of the ground.
The FTSE 100 was not immune – down over 1.4% in early afternoon trade with energy and travel stocks feeling the worst pain though some of the damage was self-inflicted, with Centrica leading the fallers on news of plunging profits.
The FTSE also partially recovered but was still 1.1% down at the close.
Oil prices were volatile too, turning more than 1% lower – with a barrel of Brent crude slipping to $55 on a report by the International Energy Agency that demand would fall this year because of coronavirus-related damage – before recovering to turn higher.
Efforts to contain the outbreak have included factory shutdowns since the end of the extended new year holiday – delaying deliveries across the Chinese supply chain.
Another significant market move was made by the euro, which was trading at its lowest level against the dollar for almost three years.
A factor, market watchers said, was Germany’s particular exposure to China as a major exporter and the expectation there is little ammunition left for the European Central Bank to provide economic stimulus against a slowing Chinese economy.
US bank Citi downgraded its forecast for Chinese growth this year to 5.3% from 5.8% just last month despite an easing in its trade war with Donald Trump.
One economist warned that coronavirus could form part of a “perfect storm” for Europe at a time when it is itself facing the prospect of a deeper trade battle with the US.
AXA Investment Management’s chief economist, Gilles Moec, wrote: “We started with the premise that this virus would be worse that SARS and that has become consensus.
“So attention turns to who is hit the hardest and Europe is among the usual suspects and Germany in particular given China is its biggest export market.
“So the reaction of the exchange rate is probably rational,” he added.