Safe-haven assets such as U.S. Treasuries and gold have rallied while risky assets like stocks and emerging market currencies have lost steam, as jitters surrounding the coronavirus outbreak ripple through markets and fears of a global pandemic grow.
“In the last two weeks, there’s been safe-haven buying of U.S. Treasuries significant enough to drive down yields 20 basis points,” said David McAlvany, CEO of the McAlvany Financial Cos. “That is telling you something about people having an underlying concern.”
Spencer McGowan, head of the McGowan Financial Group, said, “With fears of the coronavirus impact, Chinese and global disruption, we have moved from euphoria and new highs to stock fears.”
Currencies such as the Japanese yen and Swiss franc, seen as a kind of refuge in turbulent times, have both been beneficiaries of investors seeking safety. The dollar fell against the yen from 110.19 on Jan. 21 to 108.33 on Jan. 31.
Precious metals also have been subject to breakouts. The spot gold price rose from $1,547 per ounce on Jan. 21, while trading on Jan. 31 saw prices near $1,590.
‘Unprecedented Public Health Threat’
The virus, with its epicenter in China, has so far spread to more than 20 other countries and regions. As of Jan. 31, China had reported more than 200 deaths and thousands of infections, although experts point to prior data manipulation and information suppression by the Chinese regime and insist official figures can’t be trusted.“While we recognize this is an unprecedented action, we are facing an unprecedented public health threat,” Nancy Messonnier of the U.S. Centers for Disease Control and Prevention, said in a Jan. 31 conference call.
“We are preparing as if this is the next pandemic.”
A Disease That Dislocates Markets
Wall Street’s major averages tumbled more than 1.5 percent on Jan. 31, sealing its worst week in six months.Asia-Pacific shares outside Japan extended their fall, appearing set for their worst weekly loss in a year, of 4.6 percent. A 2.3 percent dive Jan. 30 was the sharpest one-day loss in six months.
Hong Kong’s Hang Seng drifted and has shed 9 percent in two weeks, while Korea’s Kospi had its worst week in 15 months, losing 5.6 percent.
In currencies, most of the action last week was nervous investors selling emerging market currencies for dollars and yen.
A range of commodities, from copper to soybeans, were hammered by worries over Chinese demand.
Oil recently hit its lowest mark in three months as the coronavirus spread threatened to curb demand for fuel.
Officials at the Federal Reserve have expressed concern about the impact of the virus.
“It’s a very serious issue,” Federal Reserve Chairman Jerome Powell said at a press conference after the conclusion of the central bank’s two-day policy meeting on Jan. 29.
“We are very carefully monitoring the situation,” he said. “There will clearly be implications, at least in the near term, for Chinese output, and I would guess for some of their close neighbors.”
The virus outbreak comes as China’s economy is already growing at its slowest pace in nearly three decades. The U.S.–China trade war took a toll on the country’s exports in 2019, and China’s economic troubles may be more severe than official data indicates, according to experts.
“This is like Chernobyl in a sense,” author and China expert Gordon Chang told The Epoch Times, referring to the nuclear accident that occurred in the Soviet Union in 1986.
If the panic continues until April or May, it will have an “enormous effect” on the Chinese economy this year, he said.
“If this isn’t brought under control quickly, you’ll have factories leaving China,” he added.
“I don’t know where coronavirus goes from here, but the uncertainty factor changes the perception of the marketplace of where you should be putting your money,” McAlvany said, “and you can already see the footprints of dollars moving to safe havens.
“The Treasury market has been radically impacted. ... I look at a 10-year Treasury note moving 20 basis points in two weeks as radically being impacted. I look at gold stabilizing relative to silver, moving up relative to silver’s decline, as a clear signal that the safe-haven purchase is in play.”