Weekly Report

10.02.2020
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Global equity markets advanced with US equities once again achieving record highs.

Investor sentiment was largely driven by developments in China as the coronavirus outbreak spread.

Markets

  • US and European equities began the week on a positive footing, with markets recovering from the sharp sell-off at the end of the previous week.
  • But Chinese stocks suffered their worst trading day since 2015 on Monday as markets reopened following the extended lunar new year holiday. The CSI 300 index fell by almost 9.1% marking the worst opening in nearly 13 years, with the index eventually closing 7.9% lower and wiping $358bn off the value of shares; this was despite the central bank injecting Rmb1.2tn to provide liquidity to the markets and to provide a buffer against the impact of the coronavirus outbreak.
  • Wider investor sentiment grew more buoyant as the week progressed, supported by further measures by the People’s Bank of China to support the economy from the impact of the epidemic, promising to inject a further Rmb500bn ($71bn) of liquidity into the financial system.
  • In the US, the S&P 500 and Nasdaq Composite indices both closed at record highs on Thursday, following the announcement by China that it plans to halve tariffs on around $75bn of US imports as it begins to implement the ‘phase one’ trade deal with the US.
  • However, ‘risk off’ sentiment returned at the end of the week as fears over the potential economic impact of the coronavirus resurfaced, causing US and European equities to retreat slightly after 4 days of consecutive gains. But despite Friday’s market falls the S&P 500 experienced its best week since June 2019, advancing 3.2%, whilst the Nasdaq Composite and the pan-European Stoxx 600 rose by more than 4% and 3.3% respectively, to record their best week since November 2018.
  • Safe-haven assets rallied on Friday as fears resumed with the 10-year US Treasury yield falling 6.1bps to 1.5817%.
  • Oil prices fell for the fifth consecutive week as the coronavirus continues to weigh on the outlook for the commodity, with Brent crude entering bear market territory as the price fell as low as $54.17. An ‘OPEC+’ technical panel has recommended a provisional cut in oil production of 600,000 barrels per day in response, in an effort to support prices.

Economics

  • The People’s Bank of China lowered the cost of short-term loans from the central bank in order to provide support to the economy.
  • Economic data releases for the week were broadly positive, strengthening the generally optimistic mood. But Europe detracted from this sentiment with German industrial output falling 3.5% in December (of which construction was down 8.7%), whilst in France industrial output slumped 2.8% in November, its second worst performance since the global financial crisis.
  • European retail sales also disappointed falling 1.6% m/m in December and the annual growth rate declining by 1%.
  • However, there was one positive note with the Eurozone composite PMI of business activity, a leading indicator, recording a five-month high of 51.3 in January – a score above 50 signifies expansion.
  • UK manufacturing survey data posted a nine-month high in December with the Markit/CIPS manufacturing PMI improving from 47.5 to 50.0, supported by construction activity which had fallen at the slowest pace in eight months.
  • The UK services sector also beat expectations as the PMI recorded its highest reading in 16 months in January, rising to 53.9.
  • The US ISM manufacturing PMI rose to 50.9 in January as the sector moved out of contractionary territory for the first time in six months. The services sector activity also picked up, evidenced by the ISM non-manufacturing index increasing to 55.5 in January, the highest level since August.
  • US employment surprised on the upside with non-farm payrolls increasing by 225,000 in January, ahead of the median forecast of 160,000, although the unemployment rate increased by 0.1% from its 50-year low of 3.5%.
  • The US Treasury Department announced that it plans to issue new 20-year bonds again after a 34-year pause.
  • Japan’s composite PMI expanded for the first time in four months, rising to 50.1 in January from 48.6 in December.

The Week Ahead

MondayChina CPI
TuesdayUK GDP; UK industrial production
WednesdayEurope industrial production
ThursdayUS CPI
FridayEurope GDP; US retail sales; US industrial production

Index Data

Stock Markets Feb 07 Jan 31 % Change
FTSE 100 7467 7286 2.48%
FTSE All Share 4151 4057 2.31%
S&P 500 3338 3247 2.78%
Nasdaq Composite 9561 9221 3.69%
Dow Jones Industrial 29200 28485 2.51%
FTSE Eurofirst 300 1657 1605 3.30%
Xetra Dax 13514 12982 4.10%
Nikkei 23828 23205 2.68%
MSCI Asia ex Jap $ 680 658 3.44%
MSCI EM $ 1102 1073 2.76%
MSCI World $ 2416 2372 1.87%
Bond Yields Feb 07 Jan 31 Bps Change
UK Gov 10 yr 0.59 0.54 5
US Gov 10 yr 1.58 1.52 6
German Gov 10 yr -0.39 -0.44 5
Japan Gov 10 yr -0.04 -0.07 3
Commodities Feb 07 Jan 31 % Change
Brent Crude ($/bbl) 54.73 56.47 -3.08%
Gold ($/oz) 1563.30 1578.25 -0.95%
Copper ($/lb) 2.52 2.52 0.00%
Currencies Feb 07 Jan 31 % Change
$ per £ 1.294 1.318 -1.82%
€ per £ 1.180 1.190 -0.84%
¥ per $ 109.775 108.385 1.28%

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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