By Geoffrey Smith
Investing.com -- Stock markets are heading lower as the coronavirus death toll showed its biggest daily increase to date. Amazon (NASDAQ:AMZN) and IBM (NYSE:IBM) are set to buck the trend after the former posted blowout earnings and the latter announced the departure of CEO Ginni Rometty. Most of China's factories are due to stay shut next week as the country tries to stop the virus spreading - that will have impacts on demand for commodities and will disrupt global supply chains. Eurozone GDP grew at its slowest since 2014 in the fourth quarter, with the French and Italian economies both contracting. And Donald Trump looks set for a speedy acquittal by a friendly Senate in his impeachment trial. Here's what you need to know in financial markets on January 31st, 2020.
1. China to stay (mostly) shut next week on virus fears
The death toll from the novel coronavirus rose by the most in absolute terms yet, hitting 213, with over 9,800 cases confirmed. New countries reporting confirmed cases for the first time included Italy and the U.K. However, fatalities have still been completely restricted to China, and the majority of them are confined to the Hubei region where it broke out.
Even so, the impact on the Chinese economy is too big to be ignored. Factories in most of China’s industrial heartlands are due to stay shut for a second week when the New Year holiday season ends, hitting demand for commodities and disrupting global supply chains.
Goldman Sachs (NYSE:GS) analysts estimate that the outbreak will take some 0.4% off Chinese GDP growth this year.
2. Eurozone growth weakens, U.K. lending picks up to mark Brexit day
The euro zone’s economy grew at its slowest rate since the middle of 2014 at the end of last year, as both the French and Italian economies contracted under the influence of strikes against President Macron’s pension reforms and a sharp drop in inventories in Italy. A surprise drop in German retail sales at the end of the year also contributed to a mere 0.1% quarterly rise in eurozone output, while inflation also dipped in January due to lower prices for package tour holidays.
There was slightly better news on the other side of the English Channel, where U.K. mortgage lending rose at its highest rate since the referendum to leave the EU in 2016.
The pound stopped just shy of a seven-week high against the euro, before retracing to leave EUR/GBP at 0.8xxx.
3. Stocks set to open lower as headwinds strengthen
U.S. stocks are set to open markedly lower after weak economic data from the euro zone underlined the strength of the headwinds to growth against the backdrop of a spreading coronavirus.
Markets had rallied strongly into the close on Thursday after the World Health Organization chose not to recommend limitations on international transport, but appear likely to pare those gains at the open.
By 6:30 AM ET (1130 GMT), Dow 30 futures were down 142 points or 0.5%. The S&P futures and Nasdaq 100 futures were down in parallel.
The 10-year Treasury yield, which started the week around 1.75%, is on course to end it at 1.56% after riding a wave of risk aversion. It’s fractionally below the 3-month T-bill yield for the third day running.
4. Amazon's investments pay off; IBM's Rometty heads for exit
Amazon.com (NASDAQ:AMZN) stock is set to open some 10% higher after the company reported blowout earnings for the holiday period after the closing bell on Thursday.
Earnings per share came in over 50% above consensus forecasts at $6.47, as the company’s heavy investment in one-day shipping reaped dividends in the most important months of the year.
Operating income at Amazon (NASDAQ:AMZN) Web Services continued to grow, albeit at a markedly slower rate, while its advertising business also churned out more profit. However, the international business lost money again, and sales at the physical stores division, which includes Whole Foods, fell 1%.
Elsewhere after the closing bell on Thursday, IBM (NYSE:IBM) announced that long-serving CEO Ginni Rometty will stand down to be succeeded by the head of the group’s cloud-computing division. IBM stock rose 4.6% in after-hours trading in response.
5. Impeachment trial set for speedy conclusion
President Donald Trump is on course for a speedy acquittal in his impeachment trial, after a key Republican Senator signalled he would vote against allowing new witnesses.
Sen. Lamar Alexander of Tennessee said via Twitter that, while he accepted the Democrats’ assertions that Trump had pressured Ukrainian President for political favors while withholding military aid that had already been approved by Congress, he didn’t see it as sufficient grounds for impeachment.
Alexander’s comments make it almost certain that former National Security Advisor John Bolton won’t be called upon to testify, an event that could have significantly increased pressure on Republican Senators to vote for impeachment.