(03 February 2020)DAILY MARKET BRIEF 1:Bloodbath as China returns.

Stocks in China nosedived 9% at the open as traders returned from a week-long Lunar Year break. Yuan fell past 7 against the US dollar, copper and iron tanked by the daily limit. The death toll due to the coronavirus rose to 360, more than 17’000 is said to be infected.

The People’s Bank of China (PBoC) cut the funding rate by 10 basis points and injected cash into the system in an effort to slow down the race to the bottom. Targeted measures may have eased some of the pressure, but given the size of the sell-off, there was little authorities could do anyway. In the coming days, China will likely unleash other measures gradually to contain the panic in the market.

Now, it is worth noting that markets have opened but many Chinese businesses will not return before another week. Hence, one thing is sure, the Chinese economy will be heavily hit in the first quarter; growth could fall as low as 4.5% according to Bloomberg. As an early indication, the Caixin PMI showed that the Chinese manufacturing grew at its slowest pace in five months in January.

Some but not all Asian markets joined the Chinese sell-off on Monday. Nikkei (-0.98%), ASX 200 (-1.34%) fell, Kospi (+0.11%) and Nifty (+0.63%) traded on the front foot.

By Ipek Ozkardeskaya