With the rapid spread of the virus outside China and the increasing fear regarding the possible economic impact, financial experts are bracing for the worst.
Investors, increasingly in search of safer harbors, have turned to US Treasury bonds, while the yield on the benchmark 10-year note has fallen to its lowest since 2016. In Europe, the German bond yield curve returned to negative territory in the final week of February for the first time since October, which means that investors may have to pay for holding them to maturity.
As sharp plunges occurred across global stock exchanges, things haven’t been much different in Turkish markets. Borsa Istanbul fell by 8.2 percent in late February to 114,000 points, down from 124,537 on 22 January. The dollar rate rose by TL 0.20 to above TL 6.15. The two -ear benchmark bond yields jumped to 12%from 10%.
Growth falls, gold soars
Renewed fears that the coronavirus will harm global growth has rocked commodity markets. Oil and metals prices tumbled while gold soared toward $1,800 an ounce amid a flight to haven assets. The price of gold per gram soared to above TL 339. Finance chiefs and central bankers from the world’s largest economies say they see downside risks to global growth persisting as the coronavirus raises uncertainty and disrupts supply chains. International Monetary Fund (IMF) Managing Director Kristalina Georgieva said the outbreak had led the lender to cut its forecast for Chinese growth to 5.6% from 6%.
These developments are causing new alarm bells to ring for commodity markets, which had just started to recover following sharp falls caused by the chaos the supply chain was thrown into by the Chinese markets being shut-down. As the IMF cut its global growth forecast and warned that further “problem” scenarios are possible, investors are concerned that risks to demand for raw materials might be increasing.
Ambiguity to continue
Analysts say that the volatility in markets caused by coronavirus has led to fears concerning growth and demand, and note that the virus is causing investors to seek haven assets, which in turn is pushing gold prices. Charles Gillams, managing director at RJMG Asset Management Ltd. in a late February statement said, “Impact on Chinese business is already deep, so, whether that has a one economic quarter impact — of some severity — or is a bigger issue remains unclear.” This evaluation by itself suggests that markets will continue to be on edge because of coronavirus for yet another while.