A sharp increase in the number of confirmed coronavirus cases in Europe over the weekend, the vast majority of them in Italy, has prompted investor jitters in markets.
The Italian stock exchange in Milan is down 4.3%, on course for its biggest one-day percentage loss since June 2016. Elsewhere in Europe, the UK’s FTSE 100 has fallen 2.6%, Germany’s DAX is down 3.3% and the Paris CAC has slipped back by 3.4%. The pan-European STOXX 600 has also fallen by more than 3%.
The sell-off appears to have been prompted by the wave of new cases in Italy. There are now over 150 confirmed cases in the country, up from just three on Friday. Four people have died from the virus in the country.
“It would appear the coronavirus has finally caught up with the markets,” Craig Erlam, an analyst with foreign exchange company OANDA told AFP.
“The deceleration in new Chinese cases gave investors a reason to buy the dip, but the spike outside of the country in the last few days supercedes that. Investors, in their determination not to miss a dip-buying opportunity, have been caught premature. This could sting,” he said.
Airlines take a big hit
European investors have rushed out of equities and into safe havens such as gold and US government bonds. The European sell-off mirrors similar firesales in Asian markets, sent into a frenzy by a surge in cases in South Korea.
Airline stocks have taken a particular battering, with international transport an obvious casualty in the event of a global pandemic. European airlines EasyJet, Ryanair, Air France and Lufthansa are all down by between 7% and 9%.
As well as travel, stocks in tourism and luxury concerns are also down sharply. Sectors reliant on China for their supply chains, in particular the car industry, also continue to lag badly.
Many investors expect the fall to continue now that coronavirus fears appear to have moved beyond China and the Asia-Pacific region. “Markets [are] likely to show extreme caution in the face of [the] global spread of the coronavirus — this is no longer solely an Asia issue,” Robert Carnell, chief Asia-Pacific economist at ING, told the Financial Times.
Away from the markets, the sharp rise in coronavirus cases is having a very real and practical impact on economic activity in Italy.
The government there has imposed a strict quarantine across more than 10 towns in the northern region, where officials are trying to limit the spread of the biggest outbreak of the virus outside Asia.
The Italian outbreak is centred around the regions of Lombardy and Veneto, where Venice and the Italian industrial and financial hub of Milan is located. Those two regions account for around one-third of Italy’s entire economc activity. Many of the cases suddenly emerges in the small town of Codogno, 65 kilometers (40 miles) south-east of Milan.
Schools and universities in the region have been closed while several major public events have been affected. Milan Fashion Week, the major clothing trade show, has been disrupted while the Venice Carnival was cut short by two days on Sunday.
Aside from the quarantined towns, travel into Italy has been hit. Austria, which shares a 404-kilometer (251-mile) border with Italy, is considering border controls.On Sunday night, Austria refused entry to a train coming from Italy after the Italian State Railways told the Austrian train operator OBB that two people on board had fever symptoms.
A train stoped by authorities stands on the tracks at the train statin on the Italian side of the Italian-Austrian border.
All train traffic between the countries was briefly suspended but that was lifted within a few hours.
In the wake of the developments in Italy, the European Commission has announced a €232 million ($251 million) aid package to help member states fight the outbreak.
China still the center
While the outbreak in Italy has brought the coronavirus firmly onto European soil, the epicenter of the problem remains firmly in China, both in health and economic terms.
There are now just under 80,000 confirmed cases worldwide and of these, more than 77,000 are in China.
Despite the new European fears, China has actually eased restrictions in several places, including in Beijing, as the rate of new infections fell back.
Nonetheless, economic activity in China has been hit dramatically by the coronavirus outbreakand that had already been felt globally before the rise in new cases outside China over the weekend.
China is the EU’s second-largest trade partner. with combined trade of €559 between the two in 2019. The EU Chamber of Commerce in China’s President Jörg Wuttke has already spoken of the fact that foreign businesses’ operations have been seriously disrupted in China that they may have to look elsewhere for supplies.
He said that while the Chinese market is “always a lure, people have now woken up to the fact that you must have a backup plan.”