Image source: "Coronavirus (2019-nCoV)" by Studio Incendo is licensed under CC BY 2.0
Over the weekend, the novel coronavirus COVID-19, which was the central topic of discussion over the previous week, entered into a new stage of its spread and development. A significant outbreak in the number of confirmed cases in Italy, South Korea and elsewhere prompted renewed panic in the global stock markets.
Such concerns come only days after the promising news in China that the outbreak in the Wuhan city, the ground zero of the virus, seems to have moved past its peak with fewer cases being reported now.
Just in Italy, the number of confirmed cases exceeds 200 as of Monday afternoon with the coronavirus claiming at least six lives.
As the outbreak in the European country continues to pick up steam in spite of the government-imposed restrictions on travel in the northern parts of the state, the general economic activity in Italy is nearing a complete halt.
More and more cases are being reported in Iran, South Korea, Bahrain, Afghanistan and elsewhere. Meanwhile, the numbers of new confirmed COVID-19 cases in mainland China, excluding Wuhan and its province, seem to be less than what was recorded at the beginning of last week.
All of this seems to point to a likely transformative change in the coronavirus’ progression – the early stages of the epidemic spreading globally and becoming a pandemic.
That is why global markets are currently so sensitive to all virus-related news. The responsiveness of the global capital markets to the recorded surge in new cases outside of China has raised investors’ fears, which has resulted in heightened volatility.
As the global uncertainty continues to rise, the demand for perceived safe-haven assets, such as gold and the Japanese yen, has increased considerably. At the same time, the fears of a new recession have prompted a massive selloff of US and European stocks.
The S&P 500 has tumbled by nearly 3 per cent so far during today's trading session, while the price of gold has surpassed 1670 dollars per troy ounce.
The massive divergence between the two assets is the biggest one on record since mid-2019, which encapsulates the general uncertainty that is driving the markets at the present moment.
If the current trend continues to develop at the same pace into the following days and weeks, this uncertainty and general panic are likely to result in the formation of the first major correction in the stock market since December 2018.
Central banks are now likely to weigh in on these new headwinds to global growth, and would probably revise down their projections for growth by the end of the year.
Additionally, they would also consider easing off their monetary policies in a bid to offset the negative impact of the aforementioned uncertainty and thereby accommodate the already weak growth.
S&P 500 vs GOLD 1D Chart. Image source: Trendsharks ©, created with TradingView.com
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