Omodele Adigun with agency report
From stocks to bonds and currencies, the coronavirus outbreak is rocking all corners of financial markets.
Global stocks have fallen for seven trading sessions in a row, lodging their worst week since the 2008 financial crisis and putting investors on edge as the novel coronavirus continues to spread outside China.
Stocks plunged and financial conditions tightened as traders woke up to the risks that the virus poses to global economic growth and corporate earnings, with cases now present in more than 50 countries and territories.In the US, the Dow finished last week down by 12.4 per cent, while the S&P 500 slid 11.5 per cent.
US stocks, according to CNN, recovered some losses in the late hours of trading on Friday after Federal Reserve Chairman, Jerome Powell, put out a rare statement. “The fundamentals of the US economy remain strong,” he said, while acknowledging that the coronavirus “poses evolving risks to economic activity.” The central bank,” Powell said, will “act as appropriate to support the economy.”
To investors, the message was loud and clear: expect the Fed to cut interest rates when it meets this month. According to CME Group’s FedWatch tool, 100 per cent of investors now predict a rate cut this March — with nearly 95 per cent forecasting that the Fed will lower rates by a decisive 50 basis points.
Will that reassurance be enough to help markets stabilize this week? It’s hard to say. After years of persistently low interest rates, investors are worried that central banks lack sufficient ammunition to stave off a crisis.
“An interest rate cut in this environment will arguably do little to affect real economic activity,” Morgan Stanley economist, Ellen Zentner, told clients on Friday.
And the market remains driven by news of how the outbreak is moving around the world, as well as how it’s hitting businesses and economies. On Saturday, China said that factory activity in February hit the weakest level on record, and the first person died from the coronavirus in the United States as Nigeria recorded its first case.
Justin Onuekwusi, a fund manager at Legal & General Investment Management, told CNN that his team — which manages $84 billion in retail multi-asset funds — has reduced its exposure to stocks and the Korean won.
“We don’t feel the market has certainty on this,” he said. “The impact on Chinese growth and the rest of the world is potentially quite huge.”
Back home, proceedings on the floor of the Nigerian Stock Exchange (NSE) continued its loss-making trend, sending the market’s Year-to-Date (YtD) return into the negative territory by -0.6 per cent with investors scampering for safety in other instruments.Consequently, the All Share Index (ASI) dipped by 2.21 per cent to close Friday’s session at 26,216.46 points while market capitalisation returned to N13 trillion mark.
Reacting to the Coronavirus pandemic, Mike Eze, the Chief Executive Office of, Crane Securities said the impact might likely hit the market as Nigeria is not adequately prepared due to its weak macroeconomic state.“We are hoping that the vaccine would come in time so that this tension can die down as it is not good for an emerging market like ours.”Analysts at Cordros Capital, on their part, said: “In the likelihood of the situation in the market, as well as the virus, investors should seek flight in fundamental stocks as opportunities still remain in terms of bargain hunting.”
Weighing on the consequences of COVID-19 on Nigeria, Lukman Otunuga, a senior analyst with FXTM said it has multiplied the risks to the Nigerian economy.
He explained: “Like many other economies, Nigeria is vulnerable to the spread of the COVID-19 virus in economic and health terms because one of its main trading partners is the epidemic’s epicenter China. For the time being, the sizable manufacturing sector in China has been slowed by large-scale workforce disruptions and it is expected that GDP growth for the quarter will be pressured amid a fall in business confidence.
“While it is too early to tell the precise extent of the slowdown, the impact on the supply chain and trading with China’s trading partners is already evident. Nigeria’s crude Oil exports to China fell in February amid weaker Oil prices as the outlook for global Oil demand weakens.
Nigeria’s Q1 GDP remains exposed to external uncertainties in the form of weaker Oil prices, the coronavirus COVID-10 outbreak, slowing growth in China and the global economy.
“Focusing on the global coronavirus outbreak, so far there are over 83,000 confirmed cases with over 2800 deaths. The World Health Organisation (WHO) has identified Nigeria as one of its top 13 priority countries because of the direct links and travel volume to-and-from China. It is positive that Nigeria’s authorities are taking measures to stop the virus spreading, but the risks remain.
Since the onset of the virus outbreak early in the year, Oil prices have slipped over 15 percent amid demand-side concerns, the USD has appreciated against G10 and emerging market currencies against a background of risk aversion and Gold has jumped to fresh seven-year highs.
If it continues to spread, the virus outbreak and subsequent slump in demand from China present major risks to the Nigerian economy. Crude Oil revenues account for less than 10 percent of GDP but remain the biggest source of foreign exchange for the nation, 90 percent of export sales over 50 percent of government revenues.
“Falling Oil prices would reduce foreign exchange reserves and ultimately complicate the CBN’s efforts to defend the Naira, meaning potentially heightened pressures on inflation and consumption with an eventual impact on growth. Lower Oil prices also impact the 2020 budget which was based on 2.18 million bpd at an Oil price benchmark of $57 per barrel.
Moreover, China is one of Nigeria’s biggest trading partners with total trade flows in Q3 2019 worth over $3.2 billion. It is important for the economy for the virus outbreak to be brought under control because if trade flows decline on the back of slowing growth in China, the impacts are likely to be felt in Nigeria.
