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Oil and equities sink over fears deadly virus will hit economies

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The toll from China’s viral epidemic spiked on Monday to 80 dead with hundreds of new infections despite unprecedented quarantines and travel lockdowns, as foreign governments scrambled to help their trapped citizens. AFP

Oil and equities sink over fears deadly virus will hit economies

Fears over the global economic impact of a deadly new Severe Acute Respiratory Syndrome (Sars)-like virus sent oil prices plunging more than two percent on Monday to extend last week’s sell-off, while safe-haven assets including the yen and gold rallied.

As the death toll from the Chinese epidemic jumped to 80 with those affected worldwide approaching 3,000, analysts said there were growing fears the crisis could become as bad as the Sars outbreak that hammered Asian markets in 2003.

The outbreak of the coronavirus has led China to lock down the epicentre of the disease, Wuhan – a city of 11 million people – while imposing tight travel restrictions on a number of other cities including Beijing.

The move comes during the Lunar New Year holiday when hundreds of millions of people criss-cross the country and spend billions of dollars.

The government decided late on Sunday it would extend the holiday and related school closures beyond January 30 end date to “reduce population flows”, state media said.

The outbreak has led to the cancellation of festivities, along with temporary closures of Beijing’s Forbidden City, Shanghai’s Disneyland and a section of the Great Wall.

Stephen Innes at AxiCorp warned the economic shock to China and the world – just as a growth slowdown appeared to be easing – could be massive.

“The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel,” he said in a note.

“But also because any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalisation.”

He added: “Unlike 2003 where Sars was less impactful on the developed world market, the rest of the world could feel the pinch this time around.”

Flight to safety

If the new virus has the same impact on China as Sars, the falls could be worse then projected, Innes said, because consumption is a bigger part of the country’s economy and its overall growth trajectory is weaker.

Most regional markets were closed for the Lunar New Year break, but Tokyo was open and fell two per cent. Bangkok plunged nearly three per cent on worries about the Thai travel sector, while Mumbai, Wellington, Manila and Jakarta also suffered losses.

Both main oil contracts tumbled more than two percent, having dropped more than six per cent last week owing to concerns about the effects on demand in the world’s number two economy.

“With ample supply around the world, oil is more vulnerable than most markets to a shock economic growth slow down,” said OANDA analyst Jeffrey Halley.

The flight to safety saw the yen rally against the dollar, with the unit now up more than one percent from eight-month lows touched earlier this year.

However, the greenback rose across the board against higher-yielding, riskier units such as the South Korean won, Thai baht, Indonesian rupiah and Australian dollar.

Gold, another go-to asset in times of turmoil and uncertainty, is heading back towards $1,600 and the six-year peaks touched at the start of January.

While the main focus is on the spread of the virus, traders will also be keeping an eye on the release of earnings this week from top companies including Apple, Facebook and Samsung.

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