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Feb 25, 2020

The Market: Stock market sell-off continues as companies count cost of coronavirus crisis – business live

Graeme Wearden



Today’s flurry of corporate warnings highlights the damage that a Covid-19 pandemic would have on the global economy -- both on supply chains and on customer demand.
Olivier Blanchard, a former chief economist at the International Monetary Fund, fears that governments will struggle to cushion this blow:
Olivier Blanchard (@ojblanchard1)
1. The next few days will likely see an avalanche of analyses of the economic effects of the corona virus. Here are a few points, building on a previous thread. Basic point: Anti virus measures aim at the core of economic organization, the division of labor.
February 24, 2020
Olivier Blanchard (@ojblanchard1)
2. We have to assume that we shall see repeated and localized pockets of infection around the world for some time to come (maybe until vaccines come on line). These in turn will lead to quarantines, border closures, and disruption of economic relations.
February 24, 2020
Olivier Blanchard (@ojblanchard1)
3. Because the remedies are extreme, even small risks of infection and of death can have a drastic effect on economic activity.
From a macro viewpoint, it is an unusual supply shock. What can policy do?
February 24, 2020
Olivier Blanchard (@ojblanchard1)
4. Fiscal policy cannot increase production where the source is firm closures or supply chain disruptions. But it can help fund the means to fight the epidemic, be it health measures, hiring health personnel, helping suppliers of medical equipment.
February 24, 2020
Olivier Blanchard (@ojblanchard1)
5. If panic leads to a large decrease in demand, a fiscal expansion may be able, if not to get output back to its previous level, at least to maintain higher output.
February 24, 2020
Olivier Blanchard (@ojblanchard1)
6. In the same way, monetary policy can help sustain demand. But it can help the financial sector help firms in trouble, either because of low sales or supply disruptions.
Bottom line: Even if the death cost is limited, the economic cost may be large.
February 24, 2020
The Spanish stock exchange in Madrid, Spain. Photograph: Fernando Alvarado/EPA
European stocks are under pressure again, because Italian authorities have just announced the first positive coronavirus case in the South of Italy.
A woman from Bergamo, who was on holiday with her friends in Sicily, has tested positive for Covid-19. The patient, who is not in serious conditions, has been transferred to the Hospital Cervello in Palermo, our Coronavirus liveblog reports....
Three more people have died from the virus in Iran (taking the total to 15), and there are almost 1,000 cases in South Korea.
This bad news is weighing on the markets, with cruise operator Carnival and holiday operator TUI both down 2%, among the big fallers in London. The UK, Italian and Spanish markets are all in the red again.
Josh Mahony, senior market analyst at IG, explains:

What was largely a Chinese issue to resolve has soon become an international problem, with European eyes transfixed on Italian efforts to curb the spread of the virus. With European borders open and the Italian ‘patient zero’ still unknown, things could easily turn from bad to worse in the efforts to keep the coronavirus at bay.
With tourism to and from China plummeting, there is little reason to expect any different in Europe if this virus spreads throughout the continent. The declines seen for largely European-focused airlines such as easyJet and Ryanair highlight the increasing fear that we will see travel locked down closer to home, with obvious knock-on implications for consumer activity should that occur

The rally has fizzled out!
Britain’s FTSE 100 has dropped back to yesterday’s two-month closing low of 7163 points, and the Stoxx 600 index is slightly negative.
Updated

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Another specialist UK manufacturer, Morgan Advanced Materials, also expects to lose millions of pounds due to Covid-19.
Morgan makes heat-resistant products such as thermal ceramics, crucibles and high-tech seals for use in extreme temperatures and corrosive environments.
It has has been forced to suspend work at a Chinese factory since the coronavirus outbreak began. It also expects to keep a plant in northern Italy closed for the next two weeks.
This will dent Morgan’s output - and thus revenues and profits -- as Reuters explains:

Industrial materials maker Morgan Advanced Materials has closed its manufacturing facilities in China because of the coronavirus outbreak and expects a hit to 2020 revenue and headline operating profit as a result, the company said on Tuesday.
The British company, which generates around 10% of its revenue from China, said the outbreak will take around £3.5m ($4.5m) off its headline operating profit and about £7m pounds off its revenue in 2020.
Morgan made operating profits of £134m last year, so this is a small but noticeable hit.

Engineering firm Ricardo's coronavirus profits warning

UK engineering and consulting firm Ricardo has issued a profit warning, due to the coronavirus.
Ricardo, which focuses on the transport, energy and scarce resources sectors, has told investors that full-year earnings will suffer a ‘material’ hit because of the Coronavirus’ disruptive impact on its China auto and rail operations.
Ricardo, which has nine offices and technical centres in China, says business development, project delivery and client engagement have all suffered from the crisis.
It says:
As we start the second half of the year, we have seen increased headwinds in the automotive sector which we anticipate will lead to suppressed order intake in our US, EMEA and China Automotive businesses.
The Coronavirus outbreak...has already had an operationally disruptive impact on our Automotive and Rail operations in China and we anticipate continuing disruption to client engagement, project delivery and business development in the coming months in mainland China and surrounding countries. Based on the issues highlighted above we are anticipating material impact to our forecast second half profits and thus full year

European stock markets have opened a little higher after Monday’s rout, but it looks very fragile.
The EU-wide Stoxx 600 index is up 0.5% this morning, having tumbled 3% yesterday. Germany’s DAX and France’s CAC are up around 0.6%.
However the Italian FTSE MIB is continuing to fall, down another 0.5%, after it reported 7 coronavirus deaths and over 200 infections.

The number of cases of Covid-19 worldwide has now hit 80,000 - our main liveblog on the crisis has all the details:

Chemicals firm Croda: Covid-19 could disrupt operations

A pile of test tubes
A pile of test tubes Photograph: Juan Moyano/Alamy Stock Photo
UK specialist chemicals firm Croda has also told the City that the coronavirus crisis could hurt its business.
FTSE 100-listed Croda has five offices in China, in Shanghai, Guangzhou, Beijing, Hong Kong and Taipei, so has suffered some disruption from the restrictions enforced by Beijing.
It told shareholders this morning:At this time, to the best of our knowledge, no Croda employees have been infected by the virus. Our sales offices have reopened, as have our two production units, albeit with more limited operations than usual. China represents 6% of Croda’s Core Business sales, 2% of Group production and a limited component of our raw material supply chain.
However, there is potential for some disruption to customer and consumer demand. We will continue to monitor the impact.
Shares in Croda are down 1.5%, after it also cautioned that demand in industrial markets is expected to remain weak but stable.

Meggitt: Coronavirus will hurt profit growth

Shares in UK engineering firm Meggitt have fallen by 4.5% at the start of trading, after it warned that the coronavirus crisis will hit its growth.
Meggitt, which makes components for the aerospace, defence and energy markets, told shareholders that its key markets will suffer from the spread of Covid-19.
It told the City that organic revenue growth will slow this year, explaining:
Sector specific factors including the production halt of the 737 MAX and supply chain disruption, as well as the wider macroeconomic impact of COVID-19 are expected to hold back margin progression in the short-term.
Meggitt added that air travel grow is likely to be curtailed by the virus (as industry body IATA warned last week), and that global supply chains will probably suffer from a production backlog due to Chinese factories being closed.
This has pushed the company’s shares to the bottom of the FTSE 100 leaderboard, down 27p at 567p.
Updated

European markets struggle back after Dow's plunge

A display showing Tokyo’s stock benchmark Nikkei Stock Average today
A display showing Tokyo’s stock benchmark Nikkei Stock Average today Photograph: Kimimasa Mayama/EPA
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors around the globe are reeling from the worst day in two years, as anxiety over the coronavirus crisis hit fever pitch.
Stocks tumbled across the globe on Monday, with America’s Dow Jones shedding more than 1,000 points by the close. That’s its third biggest points decline ever, as technology companies, energy providers and mining firms bore the brunt.
Nightline (@Nightline)
Dow Jones closes down 1,000 points amid growing coronavirus fears. https://t.co/Vo1OFAdWUO pic.twitter.com/V6YwJnO2RW
February 25, 2020
The corporate cost of the crisis is mounting too. Overnight, Mastercard cut its financial outlook due to the outbreak and United Airlines withdrew its full-year 2020 guidance.
Japan’s stock markets has suffered heavy losses overnight, as traders catch up with events after a holiday on Monday. The Nikkei index has fallen by 3.34%, or 781 points, to 22,605 in a spate of nervy selling.
Australia’s S&P/ASX index has fallen again today, losing another 1.6%.
European stocks also shed over 3% yesterday, with the Italian FTSE MIB sliding by over 5% after a spate of coronavirus deaths in Italy.
Fears of a pandemic, with massive implications on global supply chains and world economic growth, are rife.
But after very heavy losses across the board yesterday, we may see a small recovery in European stock markets today. Britain’s FTSE 100 has just opened 30 points higher, at 7,186.
That’s only a teensy recovery, mind, as it plunged by 247 points during Monday’s rout.
European stock market futures, 25 February 2020
European stock market futures, 25 February 2020 Photograph: Bloomberg TV
Investors are glued to the latest reports of infection levels, with the global death toll now over 2,600.
So there’s little chance of the markets calming down soon, argues Michael Hewson of CMC Markets.
There is no question financial markets are coming round to the realisation that this particular crisis is likely to have a slightly longer shelf life than many thought was the case a couple of weeks ago, however flu outbreaks are hardly anything new. They happen every year and according to the World Health Organisation flu kills up to 650,000 a year, yet markets are reacting to an outbreak that has so far only affected a fraction of that number.
That is not to downplay the seriousness of the coronavirus outbreak, given how little we know about it, but it could be argued that the reaction of governments to the outbreak in closing borders and restricting movement is actually making things worse, as well as sowing confusion and fear amongst their populations.
For now, there appears little prospect that financial markets look likely to settle down in the short term, which means investors will have to get used to an extended period of uncertainty and volatility.

The agenda

  • 11am GMT: CBI’s index of UK retail sales: expected to rise to 4, from 0 in January
  • 2pm GMT: The S&P/Case-Shiller index of US house prices
  • 3pm GMT: US consumer confidence survey for February: expected to rise to 132, from 131.6

Updated

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