Weekly Report

02.03.2020
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Global equities experienced their worst week since the global financial crisis in 2008.

The swift spread of the coronavirus outside of China resulted in a flight to safety, with all major indices falling into correction territory.

Markets

  • News at the start of the week of a surge of infections outside of China, with South Korea, Italy and Iran recording a number of deaths, lead investors to seek the relative safety of core government bonds and gold, causing global stocks and oil prices to tumble.
  • Investor nervousness was not helped when the US yield curve inverted (- this occurs when the yield on longer-dated bonds is lower than on shorter-dated bonds), often taken as a sign of an impending recession.
  • Daily announcements of the increasing number of coronavirus cases developing on a global basis resulted in an almost continuous sell-off in equity markets.
  • By Thursday, all three major US indices had fallen into ‘correction’ territory (- defined as a fall of more than 10%) from their recent peaks. The S&P 500 experienced its fastest correction in history having recorded its recent high just six sessions earlier, falling by 4.4% to record its worst day since August 2011, whilst the Dow Jones Industrial Average index experienced its biggest one-day decline on record.
  • Asian equities too suffered heavy losses for the week, with seven major markets entering correction territory.
  • The pan-European Stoxx 600 index shed 12.7%, its worst week since the 2008 financial crisis. The main indices in individual countries including the UK, Germany, France and Italy each declined between 11%-12%.
  • In the UK, investors were also concerned by the government’s mandate for the forthcoming trade negotiations with the EU. It indicated a willingness to leave the bloc without a deal if necessary, stating it would decide in June whether enough progress had been made to avoid switching its focus to preparing for a no-deal scenario.
  • Throughout the week investors piled into perceived safe haven assets, with US 10-year Treasury yield falling to a fresh record low of 1.114% on Friday, before recovering slightly to 1.163%.
  • US Federal Funds futures tracked by CME Group signalled a 100% chance of an interest rate cut at the Fed’s next meeting in March, and a 58% chance of a minimum of cuts totaling 1% by the year end.
  • Oil prices also plummeted on demand concerns, with Brent Crude closing the week marginally above the $50pb mark. Opec will reportedly ask members as well as Russia, part of the wider Opec+ group, to collectively implement a further production cut of 1 million barrels per day when they meet this week.
  • The VIX index, a measure of volatility known as the ‘fear gauge’, soared to 40, recording its second biggest weekly rise on record.

Economics

  • The US Federal Reserve issued a statement declaring it would “act as appropriate” when supporting the economy against the “evolving risks” posed by the outbreak of the coronavirus.
  • Broadly positive economic data releases over the week were masked by updates on the spread of the coronavirus.
  • In the UK, consumer confidence increased for the third month in a row but remained in negative territory with a reading of -7, up from -9 in January. UK house prices, as reported by Nationwide, recorded the strongest reading in 18 months with an annualised increase of 2.3%.
  • Economic sentiment in the Eurozone increased in February to 103.5, from 102.6 in January, and consumer confidence increased to -6.6 from -8.1 recorded in the previous month.
  • Consumer confidence in the US rose to 130.7 in February, although the reading fell below market expectations.
  • In Japan retail sales fell 0.4% y/y in January although better than the estimated decline of 1.1%; although the unemployment rate increased above expectations by rising 0.2% in January.

The Week Ahead

MondayUS ISM manufacturing; China PMI manufacturing; Japan PMI manufacturing
TuesdayEurope CPI; Europe unemployment ratee
WednesdayUK PMI composite; US ISM non-manufacturing; Europe PMI composite; Europe retail sales; China PMI services
Thursday-
FridayUS non-farm payrolls; US unemployment

Index Data

Stock Markets Feb 28 Feb 21 % Change
FTSE 100 6581 7404 -11.12%
FTSE All Share 3674 4133 -11.11%
S&P 500 2917 3347 -12.84%
Nasdaq Composite 8461 9635 -12.18%
Dow Jones Industrial 25087 29029 -13.58%
FTSE Eurofirst 300 1464 1668 -12.20%
Xetra Dax 11890 13579 -12.44%
Nikkei 21143 23387 -9.59%
MSCI Asia ex Jap $ 638 676 -5.53%
MSCI EM $ 1031 1095 -5.90%
MSCI World $ 2177 2420 -10.04%
Bond Yields Feb 28 Feb 21 Bps Change
UK Gov 10 yr 0.42 0.56 -14
US Gov 10 yr 1.14 1.47 -33
German Gov 10 yr -0.62 -0.45 -17
Japan Gov 10 yr -0.14 -0.06 -8
Commodities Feb 28 Feb 21 % Change
Brent Crude ($/bbl) 50.08 58.34 -14.16%
Gold ($/oz) 1652.00 1619.00 2.04%
Copper ($/lb) 2.57 2.62 -1.91%
Currencies Feb 28 Feb 21 % Change
$ per £ 1.277 1.296 -1.47%
€ per £ 1.163 1.194 -2.60%
¥ per $ 107.865 111.705 -3.44%

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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