Global equity markets experienced a slump on Monday as investors keep an eye on the deadly Coronavirus outbreak in China. About 3,000 cases of the coronavirus have been confirmed so far in China, with the number of cases continuing to rise worldwide. The death toll in China has also risen to 81.
The sell-off kicked off a busy week that will see the US Federal Reserve’s first policy meeting of the year on Jan. 28-29. Fed’s decision regarding interest rates will decide if the Wall Street will jump to yet another new highs or it will for gold to outshine.
A Buy the Dip Opportunity or Stock Market?
Although investor doesn’t have much to worry about as historically world epidemics have been bullish for market performance, many investors are recommending caution about the current bout of coronavirus as China extends the Spring Festival holiday until February 2.
US stock index futures fell sharply on Monday morning, continuing the losses that started late last week.
The three major US equity indices held lower, with the S&P 500 down about 1.5%, on track at its biggest one-day decline since October when it fell 1.56%.
Amir Anvarzadeh, senior strategist at Asymmetric Advisors in Singapore feels the full impact of this situation won’t be felt until mid-Feb, given that millions have already traveled across China for the Chinese New Year.
“Investors are selling first and asking questions later,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance told Yahoo Finance. “The Chinese economy – and possibly the world economy – will take a hit in the short run and lower prices are a rational response to the increasing spread of the coronavirus.”
“However, over the medium term this will likely prove to be a buying opportunity – just not at the very beginning of the outbreak,” he added. He explained how in mid-Nov. 2002 until mid-March 2003, the SARS breakout had S&P 500 dropping 12% before bottoming to close the year 19% higher.
Mati Greenspan, founder of Quantum Economics in his daily newsletter also feels we need to keep our eyes on Fed, “Their presser on Wednesday is more than likely to reaffirm their commitment to support the markets in sickness and in health.”
Risk aversion meanwhile pushing up gold prices
Meanwhile, gold is enjoying a move up, as investors rush to the traditional safe haven asset. Gold price climbed 1% to a near three-week high.
“Safe-haven buying has been triggered by this virus in China and we’re seeing a big sell-off in equity markets. … It’s mostly panic, the markets are looking at the prospect of the Chinese economy slowing down,” said Edward Meir, analyst at ED&F Man Capital Markets. “We could hit the recent highs above $1,600s if this thing deteriorates.”
It’s the risk aversion that is pushing up the prices of gold. Not only mounting concerns over the coronavirus outbreak are behind this but reports of a Boeing jetliner in Afghanistan and three rockets hitting the US embassy in Iraq’s capital wounding at least one person have also sent investors scurrying for safe havens.
Despite greenback’s strength, gold is taking advantage of the current situation that according to some experts could send it to a new 7-year-high in the next few weeks.
Bitcoin Jumps above $8,800 as well
Just like the gold prices rose, so did the Bitcoin prices. BTC price first started climbing on the weekend and today reached $8,816 on Bitfinex while managing the daily trading volume of $755 million, as per Messari.
Bitcoin might be a long way from being a safe haven asset but this hasn’t been the first time that Bitcoin followed gold this year. The first time this happened was when the US drone strike killed Iranian Major General Qasem Soleimani. Then BTC along with gold fell after President Donald Trump assuaged the tension in the Middle East that caused stocks to hit records.
Could spike in BTC price this time be because of coronavirus? According to Greenspan “Perhaps a few are buying on this narrative but what seems more likely to me is that upward pressure is a result of Fed printing & additional liquidity in capital markets.”
But that means the world’s leading cryptocurrency is “acting more like a risk asset than a safe haven.”