Time for a quick recap

Coronavirus fears continue to weigh on the financial markets, as supply chains are hit by factory closures and consumers face higher prices in the shops. Stocks are down in Europe and the US today, following losses in most of Asia.

The FTSE 100 is currently down 30 points, or 0.4%, with travel companies and hotel operators among the fallers. The French CAC and German DAX are also down almost 0.5%.

Although Chinese workers were due back at work today, many factories, shops and offices are still closed. LG, Samsung and Foxconn, for example, have all been forced to keep manufacturing sites closer.

This has led analysts to predict that global smartphone production could slide by over 10% this quarter, with many Chinese assembly lines gathering dust.

The crisis has also hit market confidence; Sentix’s survey of investor morale has fallen this month, on fears that global growth will be hit.

President Xi Jinping has tried to calm the situation, pledging that large-scale layoffs will be avoided.

But families are already being hit in the pocket; Chinese inflation has hit an eight year high today, partly due to supply shortages and stockpiling. Last year’s swine fever epidemic, which has driven pork price up by over 100%, is another factor.

Goldman Sachs have predicted that the impact on the global economy, and company profits, will be “limited”, telling clients:

The impact of the lower global and U.S. economic activity on 2020 S&P 500 earnings per share will be limited.

“Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks.”

But Brad Betchel of Jefferies points out that we simply don’t know how the Chinese economy will react. Even if supply chains rebound quickly, firms may not recover lost business.

We start out with a slew of headlines indicating that factories and businesses in several regions around China are reopening after their extended holiday.

Some municipalities seem to be advising factories to remain shut and employees to remain at home but otherwise the bulk of the headlines have been about reopening. We will see if this sustains and if the supply chain shock that we have all been worried about is just a temporary set back as we get things back on track. The question would become, are we going to see a ‘v’shaped recovery as pent up demand catches up or did we lose a lot of production that will not come back? That is assuming of course that the virus is contained and that still remains to be seen.

Mihir Kapadia, the CEO of Sun Global Investments, says the rising death toll is worrying investors:

“Asian markets have continued their slide as the death toll from the coronavirus has exceeded the SARS epidemic, which is raising concerns that the virus growing more serious. With 908 now dead in China, and the possibility of it reaching 1,000 in just a few days, Asia-Pacific shares outside Japan fell 0.7% to record a second day of losses while Japan’s Nikkei fell 0.8% and Australian shares dropped 0.5%. These came following Wall Street’s struggles on Friday where the Dow fell 0.9% and, the S&P 500 declined 0.5% in what will likely see markets follow a similar trend this week, unless Beijing makes any concrete announcements that the coronavirus has been contained.

It is clear that markets will remain sensitive to any coronavirus-related headlines. Although we are currently seeing relatively stable markets, any significantly worse news on the virus could lead to further significant declines in global indices.

Precious metal prices are up this morning,

China’s state TV is reporting that president Xi Jinping has pledged to prevent the large-scale layoff of workers, due to economic disruption caused by the coronavirus.

Xi, who visited a hospital treating patients from the outbreak today, warned that the situation was “still severe”, but pledged that China would win the battle. He pledged that states will take “more decisive measures” to combat the virus, and to restrict the dangers of rising infections as people return to work this week.

On the economic front, Xi insisted that the “long-term improving momentum” of China’s economy hasn’t changed -- perhaps brushing over the fact that growth hit a 30-year low last year.

Economic “adjustments” will be made to minimise the impact of the coronavirus, he added, as Beijing strives to hit its economic and social targets for 2020.

It’s official: The coronavirus outbreak has hurt investor confidence across Europe.

Eurozone investor morale has fallen for the first time in four months, according to research group Sentix. It blames fears that the coronavirus will have a serious impact on the global economy.

Sentix chief Manfred Huebner explains:

While at the beginning of the year there was still a clear upswing scenario for the global economy, the outbreak of the coronavirus in China has changed the situation significantly.

The drastic measures taken by the Chinese government for the Hubei region show the danger to the global economy if the outbreak cannot be limited regionally

Sentix’s euro-area confidence measure dropped to 5.2 in February, from 7.6 in January. That’s still higher than last autumn, when the index was dragged in negative territory by trade war fears.

But there could be worse ahead. Currently, most investors are hopeful that the economic damage from coronavirus can be confined to China (which may be optimistic, given the number of major companies affected).

So morale could keep falling, if more cases are diagnosed around the globe.

As Huebner puts it:

“The outbreak of the coronavirus and the subsequent drastic measures taken by the Chinese government cast a shadow over the economic outlook.

Fortunately, so far the effect is limited.”

“However, in view of the significant declines in Chinese economic data, it is clear that the negative effect is likely to be much greater if it does not become apparent in the coming days that the spread of the virus has been taken away.”

The coronavirus crisis could slash global smartphone production by 12% this quarter, according to a new analyst report.

Trendforce has predicted that just 275 million smartphones will be made in January-March, down from around 310m in Q1 2019. Apple’s production will fall 10%, it estimates, while Huawei will be 15% lower.

Trendforce says:

“Delayed resumption work and uncertainties in employees’ returns will cause the monthly delivery of key components to be postponed, thus affecting the progress of smartphone production.”

The coronavirus outbreak has already forced smartphone factories across China to shutdown. Foxconn, which manufacturers iPhones, has been forced to abandon plans to reopen plants today.

According to Nikkei business daily, government officials feared that Foxconn’s factories have a “high risk of coronavirus infection”, due to poor airflow and central heating systems.

Apple temporarily closing its 42 stores in mainland China earlier this month, which will inevitably hurt sales.

Separately, research firm Canalys predicted that sales of smartphones in China could HALVE this quarter, as many retail shops are closed and production has been hit.

They warned:

“Vendors’ planned product launches will be canceled or delayed, given that large public events are not allowed in China.

“It will take time for vendors to change their product launch roadmaps in China, which is likely to dampen 5G shipments.”

Ireland’s stock market has slumped by 1.25% in early trading after a seismic general election result created political deadlock.

Bank shares are leading the rout, down over 5%, after Sinn Féin smashed the dominance of Fine Gail and Fianna Fáil.

Sinn Féin appears to have won the most first preference votes, as voters flocked to its progressive policy platform including tackling Ireland’s housing crisis, supporting lower-paid workers and cut childcare costs -- and to push for a ‘unity referendum’ on a united Ireland.

Coalition talks could take several days, or longer, with Taoiseach Leo Varadkar ruling out an agreement between his Fine Gail party and Sinn Féin.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The coronavirus crisis continues to weigh on global markets. As the death toll steadily rises, new cases are reported around the world and factories across China remain closed -- leaving economists struggling to assess the impact on the global economy.

Today we have new evidence that the outbreak is pushing up prices in China. Chinese inflation has jumped to an eight-year high, climbing to 5.4% per annum in January from 4.5% in December.

It appears that the coronavirus is one factor, as households scramble to stock up on essential items, and medical items like face masks and disinfectants.

China’s National Bureau of Statistics said the jump in inflation was partly due to to the Lunar New Year holiday and the coronavirus outbreak. It reported that Hubei province, which has been hit hardest by the coronavirus outbreak, saw a 5.5% jump in consumer inflation, slightly over the national average.

That implies that the measures imposed to curb the crisis could be hitting supplies, and thus creating inflationary pressures.

Prices across China jumped by 1.4% in January alone -- a sharp rise, which may be partly due to the Lunar New Year (the scramble to get home and buy presents often pushes up costs).

Food prices have jumped by over 20% in the last year, partly due to pork prices which surged by 116% year-on-year in January. China has been forced to slaughter hundreds of millions of pigs following the swine fever outbreak last year, leading to a chronic shortage of pork.

Non-food prices rose 1.6% in January from a year earlier, picking up from a 1.3% increase in December.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says these three factors all pushed inflation to its highest since 2011:

A mix bag of higher pork prices, stronger Chinese New Year demand and the coronavirus outbreak pushed the Chinese inflation to the highest level in more than eight years.

The surge in inflation revived worries that the People’s Bank of China (PBoC) would have less freedom to ease its monetary policy to give support to the Chinese economy hit by the coronavirus outbreak, following more than a year-and-a-half long trade frictions with the US.

The latest word is that over 900 people have died from the virus which first appeared in Wuhan in December, with 40,171 infected cases.

And in the last few minutes, the UK government has declared on Monday that the new coronavirus was a serious and imminent threat to public health.

Chinese workers had been expected to return to work today after the extended New year break. But with schools and many factories closed, many people will remain at home.

Global stock markets are expected to dip today, after the The head of the World Health Organization warned that we could only be seeing the ‘tip of the iceberg’ of coronavirus cases.

Also coming up today

Sentix’s survey of investor morale, due this morning, could show that the coronavirus crisis has hurt morale.

New factory data from Italy is expected to drop in output, as Europe’s manufacturing woes continue.

David Madden of CMC Markets explains:

Last week there were dreadful industrial production reports from German and France as they showed a fall of 3.5% and 2.8% respectively. The industrial output isn’t the most influential update, but at the same time a very disappointing update will be remembered by traders.

The agenda

• 9am GMT: Italian industrial production figures for December; output expected to fall by 0.5%
  
  
• 9.30am GMT: Sentix survey of eurozone investor confidence; expected to drop to 5.9 from 7.6