* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Asian shares slip on coronavirus fears
* Safe-haven demand rises, risk assets sell off
* Virus contagion regional, rather than global shock -
JPMorgan
By Swati Pandey and Wayne Cole
SYDNEY, Jan 28 (Reuters) - Asian stocks extended a global
selloff on Tuesday as China took more drastic steps to combat a
deadly new coronavirus, while bonds shone on expectations
central banks would need to keep stimulus flowing to offset the
likely economic drag.
As the death toll reached 106 in China, some health experts
questioned whether Beijing can contain the virus which has
spread to more than 10 countries, including France, Japan and
the United States. No deaths have been reported outside of China
so far. China has already extended the Lunar New Year holiday to
Feb. 2 nationally, and to Feb. 9 for Shanghai. On Tuesday, the
country's largest steelmaking city in northern Hebei province,
Tangshan, suspended all public transit in an effort to prevent
the spread of the virus.
With Chinese markets shut investors were selling the
offshore yuan CNH= and the Australian dollar AUD=D3 as a
proxy for risk. Oil was also under pressure as fears about the
wider fallout from the virus mounted.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS slumped 1% in early Asian trading on Tuesday.
Japan's Nikkei .N225 was 0.9% down, Australian shares .AXJO
stumbled 1.4% and South Korea's Kospi index .KS11 skidded 3%.
"The wildcard is not the fatality rate, but how infectious
the Wuhan virus is," Citi economists wrote in a note.
"The economic impact will depend on how successfully this
outbreak is contained."
Analysts said travel and tourism would be the hardest-hit
sectors together with retail and liquor sales though healthcare
and online shopping were seen as likely outperformers.
On Monday, key indexes for British, French and German equity
markets slid more than 2%, as did pan-European markets on
worries about the potential economic impact from the deadly
virus. Stocks on Wall Street fell more than 1%.
E-Mini futures for the S&P 500 ESc1 reversed some of the
losses after slumping 1.6% overnight for their biggest single
day percentage loss since last October. They were last up 0.25%.
Investors were still trying to figure out the potential
impact from the coronavirus, given it would be at least a couple
more months before official economic data are released.
"How do we fully price risk, if we have such limited
visibility on how bad this could get, not just in terms of
contagion, but the impact this will have on economics?" said
Chris Weston, strategist at broker Pepperstone.
Analysts at JPMorgan said the coronavirus outbreak was an
"unexpected risk factor" for markets though they see the
contagion as a regional rather than a global shock.
"The rise in risk aversion and worry of a region-wide demand
shock ... means the knee-jerk market reaction will likely be to
richen low-yielding government bonds," JPMorgan analysts wrote
in a note.
"Concerns about coronavirus contagion has driven yields
lower and is the latest risk of a series that have driven U.S.
Treasury (UST) yields far below what fundamentals indicate. We
remain short 30-year UST."
Treasury 10-year note yields US10YT=RR dived as deep as
1.598% on Monday, the lowest since Oct. 10. Yields on two-year
paper US2YT=RR also fell sharply while Fed fund futures
0#FF: rallied as investors priced in more risk of a rate cut
later this year.
Futures imply around 35 basis points of easing by year end
FEDWATCH . The Federal Reserve is widely expected to stand pat
at its policy meeting this week, but markets will be sensitive
to any changes to its economic outlook.
Australian and New Zealand bonds gained on Tuesday as did
Japanese government bonds (JGB) with yields on 10-year JGBs set
for their fourth straight day of losses. JP10YT=RR
JPMorgan said they have not yet altered their developed or
emerging markets forex forecasts though they were taking profits
on their "bullish" EUR/USD positions and remain "considerably
long" on Swiss francs which benefits from safe-haven demand.
Short build-up in the Aussie was another risk hedge. The
currency was last down 0.1% at $0.6752, on track for its third
straight day of losses.
The euro EUR= was steady at $1.1018.
The yen JPY= , which has been rising for the past five
sessions, dipped slightly to 108.98 per dollar.
In commodities, Brent crude LCOc1 was off 27 cents at
$59.05 while U.S. crude CLc1 eased 22 cents to $52.92.
Spot gold XAU= was flat at $1,581.60.
Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
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