Unconfirmed reports of coronavirus cure send global markets soaring
Reports that a key breakthrough has been made in the search for a coronavirus cure lifted markets around the world Wednesday, as investors grew optimistic that the outbreak can be stopped before it does more damage to global economic growth.
A local TV station in China reported that researchers at Zhejiang University had discovered a treatment for the virus, which has spread to 28 countries according to the U.S. Centers for Disease Control and Prevention, sickened more than 2,400 people and killed nearly 500. And in Britain, researchers told Sky news that a vaccine could be tested by next week. The World Health Organization, however, did not confirm the reports and said in a statement that there are currently no known cures for the coronavirus. The WHO will hold a news conference at 10 a.m. to give an update on the outbreak.
The lack of WHO confirmation did not dampen the markets' gleeful spirits. European markets have nearly erased the losses from last week's panic about the outbreak, with the benchmark Stoxx 600 index up 1.3 percent and approaching an all-time high. The Shanghai Composite Index continued to crawl back from its recent brutal sell-off, also closing up 1.3 percent. Dow Jones industrial average futures are calling for a more than 250-point gain at open, suggesting it too will fully recover from last week's losses.
"It seems, the world is nearing a cure for the coronavirus and that could mean markets may only need to price in only one bad quarter of data for China," Ed Moya, an analyst with OANDA, wrote in commentary Wednesday. "Financial markets may get overly optimistic on these early headlines, but the playbook remains once Wall Street is beyond the virus, risky assets will remain supported on central bank stimulus and the global growth rebound story."
U.S. markets were also buoyed by an ADP and Moody's Analytics report showing the biggest monthly gain in private payrolls since May 2015. Private payrolls added 291,000 jobs in January, nearly double what experts had predicted.
Oil has staged a major recovery after prices fell to a one-year low earlier this week, with Brent crude trading up 2.8 percent at $55.46 a barrel Wednesday morning. The virus has all but halted travel in China, the world's leading oil consumer, and prompted air carriers and tourism companies to announce widespread cancellations.
"While we do not yet know the severity of the coronavirus outbreak, which is still largely contained within China, a substantial increase in its scope globally would have significant negative implications for the energy market," analysts at Moody's wrote in commentary Wednesday. "Past virus outbreaks did not hurt oil and gas demand as much, and while investors should be cautious, whether this time is different still remains to be seen."
Experts have been using the 2003 SARS outbreak to gauge the potential fallout from the coronavirus on global growth, and a 2004 study from the Brookings Institution, Korea University and the Australian National University estimated that the outbreak delivered a $40 billion hit to the global economy; that would amount to about $56 billion today, adjusting for inflation. But the stakes are far higher now, as China is now one of the world's most vital economic engines: Its gross domestic product is roughly $13 trillion, compared with $1.6 trillion during the SARS outbreak. Even if the virus is contained quickly, economists are predicting China's growth rate will fall to between 3 and 4 percent this quarter.
At a Bipartisan Policy Center event Tuesday, former Federal Reserve chair Janet Yellen said that though past epidemics such as SARS delivered a short-term economic blow that then faded, it is unclear whether that will be the case with the coronavirus.
"China is such a significant piece of the global economy that it's bound to have spillover effects," she said.
The outbreak has come at a pivotal moment, when the global economy was expected to rebound thanks to the trade truce between the United States and China. It's brought China's powerful manufacturing industry to a standstill, as most factories across the country have been idled until mid-February while travel restrictions have the Chinese workforce in lockdown.
Tesla, whose shares have soared past $900 and more than doubled this year, saw its stock slide Wednesday after it announced that it will delay highly anticipated Model 3 deliveries due to Chinese factory closures. Plane makers Airbus and Boeing have also announced closures, as have Samsung and Apple, which has suppliers in Wuhan, the center of the outbreak. McDonald's, Starbucks, KFC, Levi Strauss, H & M and Nike have all shuttered stores across China, and many have revised first quarter revenue outlooks to account for losses tied to the virus.
