What To Expect From Stocks, Bonds, & Gold As Wuhan Virus Spreads

Authored by Andreas Steno Larsen via Nordea,

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.

Trade accordingly.