By Geoffrey Smith
Investing.com -- The coronavirus spread across Europe and western Asia, causing further losses in regional stock markets and ensuring firm support for gold and government bonds. U.S. markets, however, are likely to attempt a modest bounce at opening after two days of heavy losses. They'll face an early test in the shape of earnings from TJX (NYSE:TJX) and Lowe's. Crude oil prices hit a 13-month low and are again trading below $50 a barrel, while Disney ended years of speculation over who will be its next CEO. The market still didn't like how it handled the announcement. Here's what you need to know in financial markets on Wednesday, February 26th.
1. Europe braces for pandemic
Europe braced for the further spread of the Covid-19 coronavirus, as Italy reported 19 new cases in the region of Lombardy and a further death that took the national toll to 11. France announced the first death of a patient with no travel links to China, while Croatia, Austria and Switzerland confirmed their first new cases.
In Spain, the capital Madrid and second city Barcelona have both reported their first cases, while over 700 tourists remain in lockdown in a hotel in Tenerife in the Canary Islands.
Europe’s benchmark Stoxx 600 fell 1.1% to its lowest in nearly four months, after food and drink giants Diageo (LON:DGE) and Danone (PA:DANO) and miner Rio Tinto (LON:RIO) all warned of virus impacts to this year’s sales.
The German 10-Year government bond yield fell as low at -0.53% as markets priced in another 10 basis point cut in the ECB’s deposit rate. The euro held steady at $1.0878.
2. Hong Kong's reflation budget falls flat; South Korea's virus spreads
Hong Kong unveiled a highly stimulative budget for the coming year, which included direct handouts of over $1,200 to every adult permanent resident. The stimulus aimed at stabilizing an economy in free fall due to the double-whammy of long-running pro-democracy protests and virus containment measures. However, the budget failed to reassure the city’s stock market, which fell another 0.7% to a three-week low.
Mainland Chinese markets also fell, with the tech-heavy SZSE Component falling 3.0%, even though China reported its lowest number of new coronavirus cases in three weeks.
In South Korea, the biggest virus hotspot outside China, the benchmark KOSPI index fell 1.3% to its lowest since early December after the country reported nearly 300 new cases, including a U.S. soldier stationed at a U.S. army base in the country. Kuwait and Iran both reported further significant increases in their death tolls.
3. U.S. markets set to open mixed
U.S. markets are set to open mixed, with major stock indices reversing overnight losses and edging higher, while bonds soften. Gold continues to receive heavy inflows.
By 6:25 AM ET, the Dow 30 futures contract was up 13 points or 0.1%, while the S&P 500 futures contract was up 0.2% and the Nasdaq 100 contract was up 0.3%.
There will be close scrutiny of Booking's (NASDAQ:BKNG) earnings after the closing bell, given the travel sector’s particular exposure to the virus. Retailers Lowe’s (NYSE:LOW) and TJX (NYSE:TJX) are also due to report.
Virgin Galactic (NYSE:SPCE) will also be in focus after falling 6.4% in after-hours trading on the back of an earnings report that reminded the market how far it still is from commercial viability. By contrast, Salesforce's (NYSE:CRM) quarterly earnings came in well ahead of expectations late on Tuesday.
The dollar hit new highs against commodity currencies such as the Russian ruble, Aussie and kiwi dollars, as well as the Turkish lira, but the dollar index that measures it against a basket of developed economy peers was broadly stable at 99.013.
4. Oil tumbles below $50/barrel
U.S. crude futures fell below $50 a barrel, hitting an intraday low of $49.01 that was their lowest mark since early January last year. By 6:25 AM ET, they had rebounded slightly to $49.49 a barrel, down 0.9% on the day.
The global benchmark futures contract Brent fell 1.2% to $53.59 a barrel.
Prices have received little support from American Petroleum Institute data showing that U.S. crude oil inventories rose by less than expected last week. The API reported a stock build of 1.2 million barrels rather than the 2.0 million-barrel rise expected. The U.S. government releases official inventories data at 10:30 AM ET.
5. Disney CEO Iger to step down
After years of on-off succession speculation, Walt Disney (NYSE:DIS) announced that Robert Iger will step down with immediate effect as chief executive officer.
Iger will stay on as executive chairman until the end of next year, when his contract is due to expire. The CEO’s duties will be taken up by Bob Chapek, who has been head of the company’s theme parks division since 2015.
Chapek has been with the company for some three decades, a factor that analysts said counted heavily in him beating streaming head Kevin Mayer to the CEO’s position.
The news comes at a time when Disney stock is taking a pummelling from the coronavirus outbreak, which has put big question marks over the performance of the theme parks division this year. The stock fell another 1.8% in after-hours trading to its lowest since April 2019.