GLOBAL MARKETS-Stocks crumble as China virus toll mounts, safe havens in favour

* 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 took a battering on
Tuesday as the death toll from a virus in China climbed, leaving
investors fretting over the widening economic fallout from the
outbreak and lifting bonds on expectations central banks would
need to keep stimulus flowing.
Outside of Asia, futures pointed to a positive start for
Europe and Wall Street but that followed a hefty sell-off on
Monday.
In early European trades, the pan-region Euro Stoxx 50
futures STXEc1 and German DAX futures FDXc1 each rose 0.3%
while futures for London's FTSE FFIc1 added 0.1%. The S&P 500
e-mini contracts ESc1 gained 0.5%.
As the death toll reached 106 in China, the country extended
the Lunar New Year holiday to Feb. 2 nationally, and to Feb. 9
for Shanghai. China'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, although futures had
bounced from Monday's lows.
Asian shares too pared some of their early losses on Tuesday
but were still deep in the red.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS slumped 0.8%. Japan's Nikkei .N225 , which was
down nearly 1% at one point, closed 0.6% lower. Australian
shares .AXJO ended 1.3% down and South Korea's Kospi index
.KS11 skidded 3%.
In an indication of the size of losses for Chinese stock
markets when they re-open, iShares China Large-Cap ETF FXI.P
sank 4% on Monday. It is down about 10% since Jan 17.
"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."
Chinese authorities also may have limited room to stimulate
the country's economy than it had during the 2002-03 outbreak of
the Severe Acute Respiratory Syndrome (SARS) virus, another
reason investors were jittery.
"The impact on the Chinese economy may be tougher to manage
than was the case after the SARS epidemic in 2003 where China
adopted expansionary fiscal policy including tax cuts to help
the recovery effort," said Matthew Sherwood, head of investment
strategy at Perpetual in Sydney.
Many investors were still trying to figure out the potential
impact from the coronavirus, though travel and tourism sectors
are expected to bear the brunt of the impact.
"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 came off lows after
diving 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.
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 flat at $0.6760 after two straight days of
losses.
The euro EUR= was a shade firmer at $1.1022.
The yen JPY= , which has been rising for the past five
sessions, dipped slightly to 109.01 per dollar.
In commodities, Brent crude LCOc1 was off 12 cents at
$59.20 while U.S. crude CLc1 eased 2 cents to $53.12.
Spot gold XAU= was a shade weaker at $1,579.28.

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