In the week ahead, all eyes are on China, South Korea and Italy as the coronavirus (COVID-19) continues to spread. China reported 150 new coronavirus deaths to the end of Sunday, bringing the total number to 2,592 in mainland China, while 409 new cases were reported, bringing the total to 77,150 (source).
South Korea recently reported 161 new cases, pushing down the Korean won and sparking a sell-off not only in Korean equities markets (Kospi Composite index was down 3% Monday morning), but also in China, Hong Kong, Taiwan, Australia and New Zealand. The government is considering adding $10bn to their budget in effort to combat the spread of the virus.
Italy has reported 152 cases from a count of just 3 on Friday, causing them to place several towns under quarantine and close schools and universities.
Stateside, investors are beginning to take note the effects the spread of the coronavirus are having on supply chains. Dow futures are set to drop more than 400 points at the open on Monday, while energy prices slumped over the weekend (WTI Crude is down 2.45%, settling at $52.07 at the time of writing).
As China struggles to contain the virus, many factories and retail stores have shut down or are operating around half their capacity. While reviewing their earnings release, Apple warned the coronavirus will have a material negative effect on their operations in Q1 2020, serving as a harbinger of things to come for a plethora of industries that source materials from China, including auto makers, electronics manufacturers, pharmaceutical companies, and others who rely heavily on supply chains originating in Asia.
It’s not looking good for equities either here at home or abroad, causing investors to flee to safety, pushing Treasury yields to fresh lows and gold prices to seven-year highs as US gold futures climbed 1% to $1,665.1 an ounce.
Given all of the above, I foresee trouble ahead in equity markets in the short-term as the coronavirus continues its spread. Taking off some risk now and moving into gold and Treasuries is not a bad idea, while also remaining on the lookout for opportunities in the aftermath of impending draw-downs and as COVID-19 runs its course.
Upcoming Economic News:
Monday
HP Inc. (HPQ) earnings release
Tuesday
JPMorgan Chase (JPM) hosts its annual investors day
February consumer confidence is released by the conference board
Case-Shiller home price index
Wednesday
January New Home Sales will be released
Thursday
Earnings from Best Buy (BBY), Dell Technologies (DELL) and Baidu (BDU)
January data for Durable-Goods Orders and Pending Home Sales
Friday
February Chicago Purchasing Manager’s index and a January report on personal income and outlays are due