(A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own.)
By Mike Dolan
LONDON, Jan 23 (Reuters) - The mood turned darker again on world markets on Thursday, unable to shake off concerns over the Chinese virus scare, hit by fresh U.S. tariff threats against Europe and anxious about some incoming corporate earnings reports. Data showing Japanese exports sliding more than forecast in December, albeit before the U.S.-China trade truce kicked in, added to the gloom. Anxiety over Italian politics added to the uncertainty while European markets await the outcome of the European Central Bank’s first policy meeting of the year later on Thursday.
The latest on China’s spreading coronavirus – although not wholly unexpected - was enough to hit regional Asian shares hard. Authorities locked down the 11-million-population city of Wuhan, the reported source of the flu-like viral outbreak, and shares of Chinese air and travel stocks were sent sliding. Shanghai’s equity benchmark lost almost 3% ahead of next week’s lunar new year break, with Hong Kong down almost 2%. Brent crude oil fell to 6 week lows close to $62 as Goldman Sachs estimated the demand impact from containing the virus could knock about $3 per barrel off prices. China’s offshore yuan slid back to its weakest since Jan. 10 and Japan’s ‘safe haven’ yen firmed slightly. The Geneva-based World Health Organization said it would decide on Thursday whether to declare the outbreak a global health emergency, which would step up the international response. If it does so, it will be the sixth international public health emergency to be declared in the last decade.
But whatever the durable economic impact of the health scare, the renewed trade belligerence from Washington toward Europe was arguably of greater concern as it cut across hopes for a period of global trade peace this year following the U.S.-China truce. U.S. President Donald Trump and Treasury Secretary Mnuchin, both attending this week’s annual Davos forum, said Washington could raise auto tariffs against Europe in response to European plans levy taxes on giant U.S. digital and internet companies. While France claims it had agreed with Trump to postpone the issue for the remainder of the year, the UK insisted it would go ahead with its digital tax plans in April – raising questions about a U.S. tariff response even as it held out the possibility of post-Brexit trade deal with Washington.
Weighed down by sliding autos, European stocks clearly underperformed on Wednesday and were marked down again ahead of the open on Thursday. The ECB meeting will be watched closely later and although no change of policy stance is expected, the central bank is expected to launch a review of its strategic policy framework much like the Federal Reserve has done over the past year. Euro/dollar was steady just under $1.11 going into the meeting and German bund futures ticked higher. Wall Street stocks notched up another record high on Wednesday, but ended only fractionally in the black. While IBM results enlivened the technology sector and Tesla’s ongoing surge bringing a U.S. automaker’s market cap above $100 billion for the first time ever, Netflix fell on disappointing subscriber numbers and Johnson & Johnson also lost 2% after its earnings update. Intel and Comcast top the slate later. U.S. stock futures are marginally in the red early on Thursday, with U.S. Treasury yields at their lowest since Jan 8. Despite the trade threats from Washington, sterling was the big currency market outperformer on Wednesday as Bank of England interest rate cut speculation receded following an upbeat UK employment and wage report earlier in the week and ahead of the first post-election business surveys out tomorrow.
On the European corporate news front, auto stocks are likely to continue to crumble under pressure as Trump's latest tariff threat adds onto to worries of falling sales and shrinking margins. Airlines, hotels and luxury sectors are on our radar as tourism will take a hit due to virus scare in China, just as millions were preparing to travel for the Lunar New Year. UK's IHG says will allow customers to change or cancel stays scheduled up to Feb. 3 across mainland China, Hong Kong, Macau and Taiwan at no additional cost. On earnings, there were some decent beats. European chip stocks are in focus after STMicro's fourth quarter earnings beat. Traders see STMicro shares to open flat to 3% higher. ASOS sales raced past estimates in latest evidence that online retailers have had a great Christmas at the cost of high street players. ASOS is seen rising 5% to 7% -- a positive read across for Boohoo and Zalando. Germany's Hochtief seen 5% down on 800 million euro on-time charge. Lufthansa was seen up 2% after a report of a potential listing of stake in its jet-maintenance unit. * Europe corp events: STMicro, Novozymes, Bankinter, EQT, Topdanmark; Sales updates from Carrefour, Getlink, Belimo
* Turkey Jan consumer confidence
* WEF meeting in Davos – German Chancellor Merkel gives keynote speech
* Spain sells government bonds
* Norges Bank policy decision
* Sweden Dec jobless; Riksbank chief Ingves speaks in Stockholm
* Russia Dec industrial output
* European Central Bank policy meeting, with press conference from ECB chief Lagarde
* US Q4 earnings: Intel, Colgate-Palmolive, Procter & Gamble, Kimberly-Clark, Union Pacific, American Airlines, Travelers, Huntington Bancshares, Southwest Airlines, Comcast, M&T Bank, Discover Financial, E*Trade
* Argentina Dec trade balance (By Mike Dolan; Editing by Toby Chopra)