By Geoffrey Smith
Investing.com -- The Center for Disease Control and Prevention confirmed the first case of the coronavirus on U.S. soil with no links to China, while the virus continues to spread across Asia and Europe. Global stocks have reacted negatively to the news and U.S. markets are set to open in risk-off mode again, with bond yields testing record lows - not least due to Microsoft's warning late on Wednesday that it will miss its quarterly sales target. Budweiser brewer AB Inbev's latest figures also showed it has been hit hard by the collapse of social drinking in China. Here's what you need to know in financial markets on Thursday, February 27th.
1. Coronavirus in U.S. makes a big step
The U.S. Center for Disease Control and Prevention confirmed the first case of the coronavirus on U.S. soil with no links to China, raising fears that the ‘community spread’ of which the CDC warned earlier in the week will soon become reality.
On Wednesday evening, President Donald Trump had put Vice-President Mike Pence in charge of coordinating the U.S.’s response to the outbreak. Trump said the risk to the American people “remains very low.”
Elsewhere, Japan ordered its schools to shut from March 2 to stop the outbreak spreading, while Saudi Arabia said it would refuse to accept pilgrims travelling to religious sites such as Mecca and Medina.
The number of confirmed cases in South Korea continued to rise sharply, while a woman in Japan tested positive for the virus for the second time, proving that re-infection is possible. In China, a leading virologist who predicted the outbreak would be contained by mid-February pushed back his timeline for that to April.
2. Global stocks retreat again
Global stocks and bond yields fell, with the exception of China, amid increasing signs that the viral outbreak is abating there. China announced fewer new cases of Covid-19 on Thursday than South Korea.
European stocks fell as much as 2.5%, spooked by the news out of the U.S. and by the disease’s spread through Europe. Airlines and travel companies were again particularly hard hit, with the continent’s discount flyers all down over 21% in the last week.
By 6:35 AM ET, the benchmark Stoxx 600 was down 2.5%, while the U.K. FTSE 100 was down 2.1%.
3. U.S. to open in risk-off mode; Microsoft's sales warning hurts mood
Risk aversion is set to be in full flood again when U.S. markets open, as participants reprice the threat to corporate earnings. Microsoft (NASDAQ:MSFT) joined Apple (NASDAQ:AAPL) last night in saying it would miss its first-quarter sales target, without giving a new one.
By 6:35 AM ET, the Dow 30 futures contract was down 265 points, or 1.0%, while the S&P 500 futures contract was down 1.0% and the Nasdaq 100 contract down 0.9%.
U.S. government bond yields have collapsed this week as appetite for haven assets has soared. The Fed-sensitive 2-year bond yield has fallen to 1.11%, implying at least two 25 basis point cuts from the Federal Reserve over the next couple of years. The 10-year Treasury yield meanwhile hit a new record low of 1.29% overnight.
Gold futures are firm above $1,650 an ounce, while U.S. crude futures have fallen over 2% to their lowest since the end of 2018 at $47.59 a barrel. Brent was also down over 2% at $51.59.
4. AB Inbev hit hard by virus in China
The world’s biggest brewer has the sector’s biggest problems. Anheuser Busch Inbev (BR:ABI) stock fell 9.3% after reporting extremely weak figures for the fourth quarter of 2019, blaming commodity and foreign exchange factors for exaggerating the slowing trend in global beer consumption.
Net profit fell 75% from a year ago and revenue fell 1.3%, despite a 1.1% rise in sales volume, suggesting that the company’s efforts at premiumization – squeezing more value out of a stable of brands that includes Budweiser and Michelob – are struggling to make headway.
Budweiser APAC, which was spun out of the parent company last year, issued a particularly stark warning that the Covid-19 outbreak had caused sales in China to fall by $285 million in the first two month of the year, as restaurants, bars and other nightlife venues suffered. That will translate into a $170 million hit to EBITDA over those months, it added.
It’s a busy day for corporate earnings, with Workday, Autodesk, EOG Resources, Occidental and Monster Beverage all set to report.
5. U.S. GDP revision, durable goods and jobless claims all due
The U.S. will update its estimate for gross domestic product in the fourth quarter of last year at 8:30 AM ET, but those backward-looking numbers are likely to be overshadowed by durable goods orders for January and last week’s initial jobless claims, both of which are due at the same time.
Data released earlier in Europe showed no major hit to European consumer or business confidence so far, the European Commission’s economic sentiment index rising more strongly than expected to 103.5, the highest since June.
The euro has rebounded against the dollar over the last 24 hours. By 6:30 AM, it was up 0.5% at $1.0938.