Monday March 2nd

2-03-2020

Dow futures drop 110 points after volatile overnight session as market struggles to rebound

U.S. stock index futures pointed to a lower open as Wall Street struggles to rebound from its worst week since the financial crisis amid fears of the coronavirus outbreak. Those flat futures mask what was a volatile overnight session where Dow Jones Industrial Average futures traded in a range of more than 1,000 points, indicating this week may be as volatile as last week as well. Around 7:30 a.m. ET Monday, Dow futures were lower by about 117 points, indicated a loss of about 155 points at Monday’s open. S&P 500 and Nasdaq 100 futures also fell. Shares of Carnival Corp. were down more than 7% in the premarket. Airline stocks Delta and American were both down at least 2% while Marriott International lost 2.2%. ConocoPhillips slid 6%. Dow futures briefly fell more than 500 points in overnight trading before recovering. The Dow, S&P 500, and Nasdaq Composite all fell more than 10% last week, their biggest weekly declines since October 2008. They also entered correction territory, down more than 10% from all-time highs notched earlier in February. Those declines came after a sharp increase in coronavirus cases outside of China. The number of cases continued to increase over the weekend, including in the U.S. “The outbreak of Covid-19 has certainly changed the near-term narrative,” said Chetan Ahya, global head of economics at Morgan Stanley, in a note to clients Sunday. “It is an untimely shock, considering that the starting point of global growth was weak, and the recovery was very nascent.” As of Sunday, more than 85,000 cases have been confirmed around the world along with more than 2,900 virus-related deaths. Australia, Thailand and the U.S. reported over the weekend their first coronavirus-related deaths. Rhode Island was the first U.S. state on the East Coast to report a coronavirus case. The number of cases in England rose to 35 after 12 new cases were confirmed on Sunday. Cases in China also reported more than 500 new cases on Saturday. New York Gov. Andrew Cuomo confirmed Sunday night the state’s first positive coronavirus case. Wall Street got its first look over the weekend at the economic toll the virus has taken on China, the epicenter of the outbreak. A private survey on Chinese manufacturing activity released during Asian trading hours on Monday came in at its weakest level ever. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 40.3 for February, far below expectations of a reading of 45.7 by economists in a Reuters poll. PMI readings above 50 indicate expansion, while those below that level signify a contraction. That came after an official data released Saturday showed China’s official manufacturing PMI plunging to 35.7 in February, a record low, from 50 in January. A reading below 50 indicates contraction in a sector. The plunge “shows the extent to which an outbreak can hit an economy,” said Ed Hyman, a widely followed economist on Wall Street and Evercore ISI chairman, in a note to clients. “All this is quite uncertain, and we may be overreacting. But we also don’t want to underreact.” Gaming revenues in Macau also plunged nearly 88% last month. Worries over the coronavirus’s impact on corporate profits and the global economy led investors to seek safer alternatives to stocks, pushing U.S. Treasury yields to all-time lows. On Sunday night, the benchmark 10-year rate broke below 1.04% for the first time ever. It was last at 1.056%. “Global investors will be prone to panic as the virus arrives at their doorstep, underscoring the need for near-run prudence and patience before augmenting favored holdings,” strategists at MRB Partners wrote in a note. “The outlook is uncertain, or rather certainly bearish in the near term as quarantining spreads around the world, but with considerable doubt as to the duration and depth of the economic fallout.” Major markets in Asia attempted to bounce back on Monday after sharp losses last week, even though Chinese manufacturing data released over the weekend and on Monday came in much worse than expected. Mainland Chinese stocks surged on the day as they attempted to recover from Friday’s steep fall. The Shanghai composite was 3.15% higher at about 2,970.93. The Shenzhen component added 3.65% to 11,381.76 while the Shenzhen composite gained 3.769% to approximately 1,869.65. Hong Kong’s Hang Seng index also advanced 0.75%, as of its final hour of trading. Elsewhere, the Nikkei 225 in Japan recovered from an earlier slip to rise 0.95% on the day to 21,344.08. South Korea’s Kospi gained 0.78% to close at 2,002.51. Oil prices rebounded more than $1 a barrel after earlier hitting multi-year lows on Monday, as hopes of a deeper cut in output by OPEC and stimulus from central banks countered worries about damage to demand from the coronavirus outbreak. Brent crude gained 51 cents, or 1%, to trade at $51.16 per barrel, off $48.40, the lowest since July 2017. Across the Atlantic, U.S. West Texas Intermediate crude hit a 14-month low of $43.32, before recovering to $45.11, up 35 cents or 0.8%. Gold rose more than 1.5% on Monday, recovering from its biggest one-day decline in nearly seven years, on the potential for interest rate cuts by the U.S. Federal Reserve to soften the economic impact from the coronavirus outbreak. Spot gold was up 1.5% at $1,608.13 an ounce and U.S. gold futures rose 2.7% to $1,609.60.