What will ‘Super Tuesday’ mean for US investors?

While US investors grapple with the impact of the coronavirus, another prospect has them bracing for further swings in domestic stocks: the presidential election calendar.

Danielle DiMartino Booth, chief executive officer of Quill Intelligence, a research firm, said president Trump’s chances of re-election would be “appreciably lower” if the US economy were tipped into recession by the coronavirus outbreak. That “opens the door to the presumptive candidate at this juncture — Bernie Sanders,” she added.

“Super Tuesday”, when 14 states and one US territory hold contests for the Democratic presidential nomination, could cement Mr Sanders as the party frontrunner this week after a string of wins in recent, smaller battles.

At least two sectors of the stock market, healthcare and energy, would see their profits “decimated” under a Sanders administration given the candidate’s stated aims to effectively eliminate private health insurance and to nationalise energy exploration and production, Ms DiMartino Booth said. Other sectors that could be vulnerable include financials, due to Mr Sanders’ planned transaction taxes, as well as technology.

As Michael Bloomberg’s chances appear to wane, investors are also watching Joe Biden, who is showing signs of a resurgence. A win for Mr Biden is seen by some as negative for markets, given his preference for an increase in the corporate tax rate.

The October Vix future, a proxy for equity volatility around the presidential election, is now 3 points above its September counterpart. “This tells me that investors are very worried about how November will play out,” said Stephen Aniston, president of vixcontango.com. Jennifer Ablan

How far could European stocks fall as coronavirus spreads?

European stocks, like those in the US and elsewhere, have had their worst week since the financial crisis as the fallout from the spread of the coronavirus grows. After a 13 per cent drop in the Stoxx 600 index, a popular benchmark, investors were left asking just how bad it could get for a region so reliant on exports to China.

Few investors are willing to put a figure on the potential fallout, and that uncertainty is exacerbating the market unease. Part of the problem is that modelling the spread and economic impact of the virus is so difficult.

The 2003 Sars outbreak has been widely used as a template, but firms such as First State Investments note that Sars had only a limited impact on Chinese output and exports, while the country’s share of global GDP is now much higher. Oxford Economics draws a parallel with the Fukushima nuclear disaster in 2011, but notes that China’s share of global GDP is about three times higher than Japan’s was in 2011. In both cases, the market impact in Europe was muted.

Amid tumbling prices, fund managers are trying to rein in risk, stick to what they know and pick up cheap stocks if they can, rather than try to guess the bottom.

Didier Saint-Georges, a member of the strategic investment committee at Carmignac, a French asset manger, said it is hard to estimate the overall impact on European stocks. He prefers large-cap “growth” stocks, whose earnings he expects to be less affected than small-cap “value” stocks.

Pieter Taselaar, fund manager at Lucerne Capital, a Europe-focused hedge fund, believes markets are now “close to the point of maximum panic”. He has been using the sell-off to add to positions in stocks such as Belgian broadband provider Telenet, which he believes have been hit too hard. Laurence Fletcher

Where next for the gold price?

Gold rallied strongly this year — rising as high as 9 per cent — before it was dragged into the deepening sell-off across markets towards the end of last week.

Having been powered by a flight to “safe” assets due to the coronavirus outbreak, a sharp downturn since Thursday cut the yellow metal’s year-to-date gains back to about 5 per cent, at $1,589 a troy ounce.

The strength of gold’s early rise had exceeded most analysts’ forecasts for 2020. Analysts predicted an average price of $1,558, according to the London Bullion Market Association.

Gold had been in favour because of falling bond yields, which reduce the downside of holding gold, which provides no income at all. The yield on the 10-year US Treasury hit an all-time intraday low of 1.147 per cent last week.

Holdings in gold-backed exchange traded funds have hit a record high of 3,018.8 tonnes, according to the World Gold Council, worth $162bn.

But analysts noted that the turnround last week suggests that investors were willing to sell any liquid asset to meet margin calls on other investments.

Gold prices slipped by over 3 per cent on Friday, the biggest intraday drop since 2013.

Still, gold has held on to the bulk of its gains and is likely to go higher this year, given the market now expects further interest-rate cuts by the Federal Reserve, according to Suki Cooper, an analyst at Standard Chartered in New York.

“Safe-haven gains tend to be sustained when the market starts to price in a greater likelihood that a given negative shock is likely to impact global growth and trigger a recession,” she said.

Henry Sanderson

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