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Beyond the Numbers

Coronavirus Outbreak May Lead To Pullback On Wall Street
1/21/2020 9:01 AM

The major U.S. index futures are currently pointing to a lower opening on Tuesday, with stocks likely to give back ground following last week’s rally to new record highs amid news of a deadly coronavirus outbreak in China.

Chinese officials revealed the coronavirus outbreak has resulted in six deaths among nearly 300 confirmed cases, with the virus confirmed to be transmissible among humans.

Concerns about the economic impact of the outbreak are likely to weigh on the markets, with travel, tourism and hospitality stocks potentially facing the brunt of the selling pressure.

Adding to the negative sentiment, the International Monetary Fund downwardly revised its forecast for global economic outlook due to bigger than expected slowdowns in emerging markets like India.

The IMF said it now expects 3.3 percent global growth in 2020 compared to its previous estimate for 3.4 percent growth. The organization also lowered its 2021 growth forecast to 3.4 percent from 3.6 percent.

Overall trading activity may remain somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

The economic calendar remains relatively quiet throughout the week, which may lead to increased attention on the latest earnings news.

A number of big-name companies are due to report their quarterly results this week, including IBM Corp. (IBM), Netflix (NFLX), Johnson & Johnson (JNJ), Procter & Gamble (PG), Intel (INTC), and American Express (AXP).

Stocks fluctuated over the course of the trading day on Friday but largely maintained a positive bias throughout the session. With the upward move on the day, the major averages once again reached new record closing highs.

The major averages moved to the upside going into the close, ending the day moderately higher. The Dow edged up 50.46 points or 0.2 percent to 29,348.10, the Nasdaq rose 31.81 points or 0.3 percent to 9,388.94 and the S&P 500 climbed 12.81 points or 0.4 percent to 3,329.62.

For the week, the tech-heavy Nasdaq surged up by 2.3 percent, while the S&P 500 and the Dow jumped by 2 percent and 1.8 percent, respectively.

The continued strength on Wall Street was widely attributed to Chinese GDP data even though the latest report showed China's economy grew at the slowest pace since 1990.

The report from China's National Bureau of Statistics said Chinese GDP grew by 6.1 percent in 2019 compared to the 6.6 percent growth seen in 2018.

However, the GDP growth matched economist estimates, which seems to have allowed global traders to breathe a sigh of relief that the impact of the U.S.-China trade war was not worse than feared.

More upbeat U.S. economic data also generated buying interest, with a report from the Commerce Department showing a substantial increase in U.S. housing starts in the month of December.

The Commerce Department said housing starts skyrocketed by 16.9 percent to an annual rate of 1.608 million in December after jumping by 2.6 percent to a revised rate of 1.375 million in November.

The surge came as a big surprise to economists, who had expected housing starts to rise by 0.7 percent to a rate of 1.375 million from the 1.365 million originally reported for the previous month.

With the much bigger than expected increase, housing starts soared to their highest level since hitting a rate of 1.649 million in December of 2006.

Meanwhile, the Federal Reserve released a report before the start of trading showing a modest pullback in U.S. industrial production in the month of December.

The Fed said industrial production fell by 0.3 percent in December after climbing by a downwardly revised 0.8 percent in November.

Economists had expected industrial production to dip by 0.2 percent compared to the 1.1 percent jump originally reported for the previous month.

The pullback in production came as utilities output plunged by 5.6 percent in December, with unseasonably warm weather leading to a large decrease in demand for heating.

Despite the continued advance by the broader markets, most of the major sectors ended the day showing only modest moves.

Steel and utilities stocks saw some strength on the day, while notable weakness was visible among gold, natural gas and tobacco stocks.

Commodity, Currency Markets

Crude oil futures are sliding $0.73 to $57.85 a barrel after inching up $0.05 to $58.58 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,555, down $5.30 from the previous session’s close of $1,560.30. On Friday, gold climbed $9.80.

On the currency front, the U.S. dollar is trading at 110.08 yen compared to the 110.18 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1113 compared to last Friday’s $1.1095.

Asia

Asian stocks fell broadly on Tuesday as the International Monetary Fund (IMF) cut global growth projections and China stepped up efforts to control a new coronavirus outbreak.

China's Shanghai Composite Index tumbled 43.65 points, or 1.4 percent, to 3,052.14, hitting a two-week low as worries grew about a new virus that has killed four people and sickened more than 200 so far.

Hong Kong's Hang Seng Index tumbled plunged 810.58 points, or 2.8 percent, to 27,985.33 after Moody's Investors Service lowered the city's credit rating and outlook, citing weaker than estimated institutional and governance strength in the backdrop of the ongoing socio-political unrest.

Japanese shares fell sharply as a new strain of pneumonia in China stoked fears of a wider epidemic that could hit the global economy. The Nikkei 225 Index declined 218.95 points, or 0.9 percent, to 23,864.56, while the broader Topix closed 0.5 percent lower at 1,734.97.

Airline and travel companies were hit by wider contagion fears. ANA Holdings gave up 2.2 percent, Japan Airlines lost 3 percent and H.I.S. slumped 5.1 percent. Cosmetic maker Shiseido fell 3.9 percent.

Markets showed a muted response to the Bank of Japan's decision to leave its key interest rate unchanged at a two-day policy review and upwardly revise its growth forecasts, citing the effects of fiscal stimulus.

Australian markets ended lower after five straight sessions of gains. The benchmark S&P/ASX 200 Index dropped 13.20 points, or 0.2 percent, to 7,066.30, while the broader All Ordinaries Index ended down 15.80 points, or 0.2 percent, 7,180.50.

Banks ANZ, NAB and Westpac rose between 0.1 percent and 0.4 percent. Mining giant BHP cut early losses to end on flat note after reporting a 3 percent rise in iron ore production.

Gold miners Evolution, Newcrest and Northern Star Resources climbed 1-2 percent as gold prices hit two-week high on news of the virus contagion risk in China.

Seoul stocks closed lower to snap a three-day winning streak as institutional investors offloaded large-cap stocks after news that three katyusha rockets fell close to the U.S. embassy in the Green Zone in the Iraqi capital. The outbreak of a new coronavirus in China also weighed on markets. The benchmark Kospi dropped 22.95 points, or 1 percent, to 2,239.69.

Europe

European stocks have slumped on Tuesday as growth worries coupled with concerns over a potential pandemic linked to a coronavirus outbreak in China sparked demand for safe haven assets.

News that three katyusha rockets fell close to the U.S. embassy in the Green Zone in the Iraqi capital has also weighed on the markets.

While the German DAX Index has dipped by 0.1 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are down by 0.8 percent and 0.9 percent, respectively.

Luxury goods makers have been among the worst hit, with LVMH, Kering, Hermes and Burberry falling sharply amid the increased threat of infection as hundreds of millions travel for the Lunar New Year holiday, the Chinese-speaking world's busiest travel season.

UBS, Switzerland's largest bank, has plummeted after cutting its profitability targets.

Wacker Neuson shares have also tumbled. The German company cut its EBIT margin outlook for fiscal 2019, citing margin pressure resulting from efforts to sell off large volumes of new equipment and an impairment on raw materials in North America.

Heidelberger Druckmaschinen has also shown a notable move to the downside after forecasting a full-year net loss.

On the other hand, low-cost airline easyJet has soared after it reported a solid rise in fiscal first quarter revenue.

Lonza Group, a supplier to the pharmaceutical, healthcare and life-science industries, has also rallied after its fiscal 2019 profit climbed 15.3 percent to 763 million Swiss francs from the previous year’s 659 million francs.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, and the economic calendar remains relatively quiet throughout the week.

Stocks In Focus

Hotel and casino operators Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are seeing notable pre-market weakness amid concerns about the potential impact of the coronavirus outbreak.

Shares of PetMed Express (PETS) may also move to the downside after the online pet pharmacy reported fiscal third quarter earnings that beat analyst estimates but on weaker than expected sales.

On the other hand, shares of Halliburton (HAL) may see initial strength after the oilfield services provider reported fourth quarter results that exceeded expectations on both the top and bottom lines.
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