Weekly Report

03.02.2020
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Global equity markets retreated as ‘risk-off’ sentiment dominated.

Fears over the coronavirus had cast a dark shadow over the markets for the entire week, sufficient to shade out central bank policy meetings in the US and the UK, as well as a raft of corporate earnings results.

Markets

  • The week started in a risk-off mood evidenced by global stocks and oil prices tumbling on fears over the potential impact of the coronavirus as the death toll in China continued to rise and greater numbers were infected.
  • With little positive news to latch onto it was perhaps inevitable that markets would become nervous and sectors such as travel, mining and oil saw their constituent stocks come under particular pressure on concerns over weaker demand from China, a major importer of commodities and the fulcrum of the viral outbreak.
  • The FTSE All-World index fell by 1.6% and Wall Street, which had recently hit all-time highs retreated with the S&P 500 index falling by 1.5% to record its worst day since October last.
  • On Tuesday markets paused for some breath, although most of the markets in the far east remained closed for the lunar new year holiday and the Chinese mainland markets would not open until today. The slightly more optimistic tone in the markets caused the price of safe-haven assets such as government bonds and gold to retreat in a reversal of Monday’s increase. Gold fell 1% to $1,567 an ounce.
  • Hong Kong’s Hang Seng index was the first Chinese market to open after the holiday period and, as if to catch up with other markets, immediately fell 3%. The index’s worst-performing stocks included the airline Cathay Pacific which announced a reduced number of flights to China, and HSBC, which makes 80% of its profits from Hong Kong and mainland China. The Asian markets, excluding China, continued to fall as the week progressed, largely reflecting the proximity to the source of the epidemic outbreak and as the World Health Organisation declared a public health emergency.
  • The fall in far eastern markets spilt over to Europe, the UK and the US which began to retreat once again, and the last day of the week brought more of the same uncertainty as markets’ worries about the impact of the coronavirus on global growth escalated further. The French, German and UK markets retreated 1.1%, 1.3% and 1.3% respectively and the US’ S&P 500 index fell by 1.6%.

Economics

  • Italy’s government bond market rallied strongly supported by the right-wing League party’s failure to unseat their centre-left rivals in local elections.
  • The retreat in Germany’s Xetra Dax index at the start of the week was aggravated by the release of data showing an unexpected fall in German business confidence in January.
  • New data also showed that the eurozone region’s fourth quarter growth was only 0.1%, below economists’ expectations. The poor economic data together with the disruptions caused by the coronavirus caused questions as to whether eurozone GDP would be dragged further down at the start of 2020.
  • News came that several global businesses had decided to evacuate staff from China and to close down a number of operations as fears rise that the mounting costs of the coronavirus outbreak will hurt the global economy. Some economists have warned that China’s economic growth could halve in the first quarter, with a knock-on effect on other countries which export to China, such as Germany.
  • Car production in the UK fell to its lowest level in almost a decade, with the decline of diesel, falling sales to China and production shutdowns in anticipation of Brexit cited as reasons for the decline.
  • The US Federal Reserve announced that it was leaving its main policy rate unchanged at a range of 1.5-1.75%, and the only apparent change to the text of its announcement from that given in December was that growth in household spending was described as ‘’moderate’ instead of ‘strong’.
  • The potential impact on the economic growth of China, together with its neighbouring countries, of the viral epidemic caused the offshore renminbi to weaken to below Rmb7 to the US dollar for the first time this year.
  • In the UK, investors had one eye on the outcome of the BoE MPC meeting which announced that interest rates would be kept on hold at 0.75% as it adopted a ‘wait-and-see’ stance. This triggered a rally in sterling to $1.311 and a sell-off in government debt with the yield on the 10-yr gilt rising to 0.56%.

The Week Ahead

MondayChina PMI manufacturing; Global PMI manufacturing; US ISM manufacturing
Tuesday-
WednesdayEurope PMI composite; Europe retail sales; Japan PMI composite; US ISM non-manufacturing
Thursday-
FridayGermany industrial production; US non-farm payrolls; US unemployment rate

Index Data

Stock Markets Jan 31 Jan 24 % Change
FTSE 100 7286 7586 -3.95%
FTSE All Share 4057 4213 -3.69%
S&P 500 3247 3308 -1.83%
Nasdaq Composite 9221 9369 -1.58%
Dow Jones Industrial 28485 29060 -1.98%
FTSE Eurofirst 300 1605 1657 -3.13%
Xetra Dax 12982 13577 -4.38%
Nikkei 23205 23827 -2.61%
MSCI Asia ex Jap $ 658 694 -5.20%
MSCI EM $ 1073 1122 -4.40%
MSCI World $ 2372 2406 -1.42%
Bond Yields Jan 31 Jan 24 Bps Change
UK Gov 10 yr 0.54 0.58 -4
US Gov 10 yr 1.52 1.68 -16
German Gov 10 yr -0.44 -0.33 -11
Japan Gov 10 yr -0.07 -0.02 -5
Commodities Jan 31 Jan 24 % Change
Brent Crude ($/bbl) 56.47 60.39 -6.49%
Gold ($/oz) 1578.25 1562.90 0.98%
Copper ($/lb) 2.52 2.69 -6.32%
Currencies Jan 31 Jan 24 % Change
$ per £ 1.318 1.307 0.84%
€ per £ 1.190 1.185 0.42%
¥ per $ 108.385 109.435 -0.96%

Source: FE Analytics, Financial Times, JP Morgan Asset Management

Risk warning: Investors should be aware that past performance of investments is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them may fall as well as rise. The content of this bulletin is for general information and reflects the general market view of Parallel Investment Management Ltd. - it should not be interpreted as recommendations or advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content.

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