Equities are likely to sell off temporarily, while long bonds could perform. Risk off moves in FX space were limited, while Gold performed in commodity space.
We have taken a look at market moves around the outbreak of SARS, Bird- and Swineflu.
Current fatality rates of the Wuhan virus are still below that of SARS (3% vs. 10% approximately) but one should of course consider that China has at the very least doubled its importance for the global economy as a whole since 2002/2003 when SARS broke out.
The severity of the Wuhan virus remains to be determined, for that reason we simply took a look at outbreaks over the recent past and found that:
Equities: Equities temporarily sold off post SARS. Europe was hit the worst (20-25% drawdown), while MSCI World drawdown was less than 10%. Hang Seng hit after both SARS and Bird-flu outbreaks.
Rates: Long bonds up (rates lower), more cuts priced but only marginally flatter curve – same pattern in EUR and USD. Bunds rose markedly post the SARS-outbreak.
FX: Risk off moves were limited in FX space. USD weakened ultimately while AUD and CAD performed. NOK and SEK performed flattish versus EUR.
Commodities: Current moves “outpace” the moves seen around SARS and Birdflu. Gold should be underpinned, while industrial metals could suffer.