Virus unsettles ASX as fears of a coronavirus outbreak grow

Caution shook global markets and hung over the ASX on Friday, ultimately wiping out gains.

Aircraft being sprayed as fears of an outbreak of coronavirus grow. Picture: AP

Local shares finished near the low of Friday’s session, clocking a meagre lift of just 2.5 points as fears of an outbreak of coronavirus grew.

At the local close, fatalities from the outbreak were estimated at 25 with more than 580 cases reported. Ratings agency S&P said that the virus had the potential to crimp consumption, especially ahead of the key Lunar New Year period, and could flow through to economic growth both in China and abroad.

That caution shook global markets overnight and hung over the ASX on Friday, ultimately wiping out the market’s gains to just 2.5 points, or 0.04 per cent, to 7090.5 despite touching as much as 7122.7 earlier in the session.

Meanwhile the All Ordinaries rose by 4.2 points, or 0.06 per cent, to 7203.2.

“Industries exposed to China’s household spending, especially activities that take place outside the home, will likely feel the biggest economic impact of the outbreak,” S&P chief economist Shaun Roache said.

“Risk aversion and tighter financial conditions could amplify the impact, including on investment.”

Shares were also restrained as traders pushed back their expectations for local cash rate cuts by the Reserve Bank of Australia - ANZ and Westpac both now tipping an April cut.

“The link with economic growth makes it difficult to think that employment can continue to be as strong as it was over November/December. Indeed, we think employment growth is likely to slow over the first half of 2020,” ANZ economist David Plank said.

“As such we think the RBA is still likely to ease further. But the recent strength in employment gives the RBA breathing space … We think the Bank will want to see data on consumer spending over Q4 and January before acting.”

Those predictions helped the Aussie dollar to surge to US68.78c, before easing at the close to US68.46c.

Financials and health stocks led the rise, with record trading in a number of heavyweight stocks – CSL lifted 1.1 per cent to $310.70 after hitting as much as $313.59, Macquarie gained 0.6 per cent to $145.86 and Magellan put on 2.3 per cent to $66.52.

In the major banks, Commonwealth Bank rose by 0.5 per cent to $84.94 and ANZ put on 0.6 per cent to $25.90 despite a downgrade to Underperform from Macquarie.

Westpac lifted 0.5 per cent to $25.21 as further details emerged of the appointment of John McFarlane as the bank’s chair and NAB edged higher by 0.4 per cent to $25.80.

Miners were the key drag as commodity prices dipped on potential for weakness in Chinese demand. BHP lost 1.5 per cent to $40.45 and Rio Tinto gave back 2.8 per cent to $103.18 as the Takeovers Panel criticised it for its intention behind a plot to control uranium miner ERA.

Fortescue dipped by 0.4 per cent to $12.48.

Rare earths play Lynas lifted 0.9 per cent to $2.36 after optimistic commentary on its outlook for permits in Malaysia.

Village Roadshow gained 4.4 per cent to $4.02 as private equity group BGH Capital lobbed a takeover offer for the group to rival a previous proposal from Pacific Equity Partners.

Insurance Australia Group was the worst performer, slipping by 5.4 per cent to $7.30 after trimming its margins guidance and tipping claims from this week’s hail storms to climb.

Downer rebounded by 6 per cent to $7.60 after a slide in trade on Thursday, along with CIMIC, which added 3 per cent to $28.88.