Mamma Mia

A spike of new coronavirus cases over the weekend was met with a heavy sell-off when markets opened on Monday.

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What's going on?

There was a spike in new Italian coronavirus cases over the weekend, and even the country’s best plumber-cum-physician couldn’t innoculate Europe’s stocks: there was a massive sell-off when markets reopened on Monday.

What does this mean?

Investors have been relatively confident the worst of the epidemic would be confined to China up to now. But over the weekend, Italy locked down over 50,000 people in an effort to limit the biggest non-Asian outbreak of the virus. That led investors to dump the country’s stocks, which fell more than 5% on Monday – their biggest one-day decline since 2016 (tweet this).

Just like the virus itself, the sell-off was hard to contain: markets across Europe slumped over 3%, driven by big declines in stocks of airlines like easyJet and Ryanair, which fell by more than 10%. Investors are now trying to gauge just how significant the hit to travel demand will be – and if the tumbling price of oil is anything to go by, hopes aren’t high.

Why should I care?

For markets: Fear in Korea.
Italy wasn’t the only country to report a spike in coronavirus cases: South Korea and Iran did too. That sudden spread could be why investors continued to flock to safe-haven assets: they sent the price of gold to another seven-year high, and the yields on government bonds – which move inversely to bond prices – to new lows. And remember, those investors might also be anticipating global central banks to lower interest rates, which would benefit both gold and bonds.

The bigger picture: Warren needs a buffer.
Famed investor Warren Buffett acknowledged on Monday that the virus will affect businesses, but since he still expects stocks to outperform bonds in the long term, he isn’t selling up. Of course, he doesn’t seem to be buying new stocks either: the Oracle of Omaha struggled to find companies to invest in last year, and bought a record amount of shares in his own company instead.

Originally posted as part of the Finimize daily email.

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