Global equity markets and government debt yields slumped on Friday as growing concerns about the impact of the coronavirus on global growth overshadowed a strong U.S. jobs report that indicated an economy on pace to grow moderately.
Stocks on Wall Street slid from record highs and safe-havens gold and the Japanese yen rose as investors weighed how much the virus is likely to disrupt supply chains. China accounts for about one-third of global growth.
The better-than-expected U.S. labor report failed to move the market as typically occurs. Caution about the virus, which has inflicted 31,211 people and left 637 dead, dictated investor sentiment.
Nonfarm payrolls increased by 225,000 jobs in January, with employment at construction sites increasing by the most in a year amid milder-than-normal temperatures, the Labor Department said.
“Investors should be watching the effect of the coronavirus on the global supply chain and thus, on the global economy and corporate profits,” said John Vail, chief global strategist at Nikko Asset Management.
While the amount and duration of the effect remains unknown, there is a chance the Phase 1 U.S.-China trade deal will be severely hampered and bilateral relations worsen again, he said.
Global supply chains have grown far more integrated, so disruptions from China have bigger ripple effects around the world, said Ron Temple, head of U.S. equity at Lazard Asset Management in New York.
While the coronavirus will be disruptive, for long-term investors it may pose an entry point into equities, Temple said.
The economy is doing fine, the U.S.-Sino trade spat is on hold and there is no apparent catalyst for stock valuations to fall, he said.
“At the same time you got interest rates that are really low, so that feeds into an equity market with incremental upside,” Temple said.
Canada’s main stock index fell on Friday, led by declines in energy stocks.
The energy sector dropped 1.7 per cent as crude prices fell.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 102 points, or 0.57 per cent, at 17,655.49, snapping a four-day winning streak.
Domestic data showed Canada added more than twice the number of jobs than expected in January, the latest indication that the economy could be strong enough to persuade the Bank of Canada not to cut rates next month.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 2.2 per cent.
Health care stocks fell 4.9 per cent as marijuana producers dropped. Aurora Cannabis Inc. plummeted 15.4 per cent, while Canopy Growth Corp. and Hexo Corp. were down 7.2 per cent and 4 per cent, respectively.
MSCI’s gauge of stocks across the globe shed 0.62 per cent, moving away from highs this week that were shy of a record peak set early in January.
Emerging market stocks lost 1.19 per cent and the pan-European FTSEurofirst 300 index lost 0.25 per cent, but the blue-chip index posted its best week since late 2016 on the week’s rally.
On Wall Street, the Dow Jones Industrial Average fell 277.81 points, or 0.94 per cent, to 29,102.56. The S&P 500 lost 15.71 points, or 0.47 per cent, to 3,330.02 and the Nasdaq Composite dropped 51.64 points, or 0.54 per cent, to 9,520.51.
Benchmark 10-year U.S. Treasury notes last rose 19/32 in price to push yields down to 1.58 per cent.
Euro zone bond yields fell after German industrial output data in December notched its biggest fall since January 2009, fanning concerns about the bloc’s biggest economy.
German industrial production tumbled 3.5 per cent on the month, exceeding expectations of a 0.2 per cent fall.
French industrial production fell more sharply than expected in December as factories contended with nationwide transport strikes and a broader European slowdown.
Germany’s benchmark 10-year Bund yield fell as low as -0.368 per cent, before rising slightly.
The dollar slid and the yen rose after four days of selling, spurred by investor hopes China can contain the virus.
The dollar index rose 0.19 per cent, with the euro down 0.32 per cent to $1.0945.
The Japanese yen strengthened 0.23 per cent versus the greenback at 109.75 per dollar.
In Asian trade, the yen halted a slide that had it set for its worst week in 18 months.
The Australian dollar was on track for its first weekly gain this year, while the Singapore dollar and Thai baht have been trampled in a rush out of emerging markets.
Oil prices slipped as Russia said it would need more time before committing to output cuts along with the Organization of the Petroleum Exporting Countries and other producers amid falling demand for crude as China battles the coronavirus.
Brent crude futures fell 46 cents to settle down at $54.47 a barrel, while U.S. West Texas Intermediate (WTI) crude futures slid 63 cents to settle at $50.32 a barrel.
U.S. gold futures settled 0.2 per cent up at $1,573.40 an ounce.