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Global equity markets were mixed last week as the coronavirus spread beyond China

Central bank stimulus, including an emergency rate cut from the US Fed, failed to support markets.


  • Global markets continued to see massive moves last week amid mounting fears that the spread of the coronavirus outside China could result in a global pandemic, threatening to severely disrupt supply chains and bring globalisation to an end.
  • The confirmed number of cases surpassed 100,000 and although more than 55,000 patients have recovered there have been about 3,400 deaths. Most fatalities have occurred in mainland China, but countries such as Italy, Iran and South Korea have witnessed an increasing death toll.
  • The Vix Index, a widely used measure of stock market volatility, experienced its biggest five-day spike since the bankruptcy of Lehman Brothers in 2008 as stretched valuations clashed with a realisation that a pandemic could tip the global economy into recession.
  • The intensity of the latest rout demonstrated an emerging trend where volatility disappears for long stretches but then aggressively resurfaces, rattled by violent shocks. Some argue that ‘option writing’, which has become a popular alternative to using expensive core government bonds for portfolio protection, has been a major contributor to the severity of the recent correction, while others have criticised algorithmic strategies such as volatility targeting for exasperating the recent falls.
  • It was unsurprising that investors remained firmly in risk-off mode and continued to seek the safety of havens such as core government bonds, prompting yields to fall even lower and in many cases to reach all-time lows. The yield on the benchmark US 10-year Treasury fell to 0.60% while the UK 10-year Gilt fell to 0.27%. Gold, another haven asset, climbed to $1,667 an ounce and kept close to its 7-year high.
  • Despite good intentions, the latest monetary stimulus measures from central banks did little to soothe markets as reality took hold; investors questioned whether lower interest rates would have any real impact on supporting the global economy when production is unlikely to increase if firms are unable to source inputs from countries affected by the virus.
  • In terms of sectors, airlines were among the hardest hit, and a slump in passenger numbers was the last straw for the UK’s Flybe, which collapsed, while other airlines all flagged up warnings.
  • Consumer goods stocks have been one of the few sectors to benefit from the coronavirus outbreak, buoyed by panic-buying.
  • Healthcare stocks were also strong after the prospects for Bernie Sanders’ “Medicare for All’ system diminished following former Vice President Joe Biden’s solid performance in the race to become the Democratic Party’s candidate at November’s presidential election.
  • Finally, oil prices plummeted after Opec’s talks with Russia collapsed, sparking fears that Saudi Arabia would scrap production limits altogether, intensifying concerns over already softer demand.


  • Global growth estimates were revised lower on concerns that the latest downturn could be prolonged due to a combination of both supply and demand shocks.
  • The OECD lowered its 2020 global growth estimate to 2.4%, and warned that if the coronavirus spreads throughout Asia, Europe and North America, growth could slow to 1.5%.
  • The IMF announced that it was setting aside a fund of $50bn in emergency financing for countries stricken by the coronavirus, given the expectation that global economic growth would be dented.
  • Central banks around the world were quick to provide supportive measures with the US Fed cutting rates by 0.5% to 1% - 1.25%, outside of an FMOC meeting; this prompted central banks in Canada, Australia and some emerging market countries to follow suit.
  • The ECB was more cautious, while Mark Carney, Bank of England governor, suggested different countries would take a domestically tailored approach rather than the co-ordinated action seen during the 2008 financial crisis.
  • Reduced activity in China started to feed through to its economic data as the Caixin service sector PMI fell to 26.5 from 51.8, similar to the official index reading of 29.6. Not only was it the worst on record, but it was the first time since the survey began in 2005 that it was below 50. Chinese new orders also fell to their lowest level since the financial crisis, but outstanding orders surged to a record high as existing orders have not yet been completed.
  • The latest US data releases provided little confirmation of a slowdown as the ISM’s services PMI stayed firmly in expansionary territory, registering 57.3 versus 55.5 in January, while construction data was also particularly strong. The February jobs report surprised on the upside as 273,000 jobs were added during the month while the US unemployment rate returned to a 50-year low.

The Week Ahead

TuesdayEurope GDP; China CPI
WednesdayUS CPI; UK industrial production
ThursdayECB deposit rate; Europe industrial production

Index Data

Stock Markets Mar 06 Feb 28 % Change
FTSE 100 6463 6581 -1.79%
FTSE All Share 3601 3674 -1.98%
S&P 500 2948 2917 1.06%
Nasdaq Composite 8506 8461 0.52%
Dow Jones Industrial 25609 25087 2.08%
FTSE Eurofirst 300 1432 1464 -2.19%
Xetra Dax 11542 11890 -2.93%
Nikkei 20750 21143 -1.86%
MSCI Asia ex Jap $ 647 638 1.32%
MSCI EM $ 1039 1031 0.84%
MSCI World $ 2192 2177 0.69%
Bond Yields Mar 06 Feb 28 Bps Change
UK Gov 10 yr 0.27 0.42 -15
US Gov 10 yr 0.71 1.14 -43
German Gov 10 yr -0.71 -0.62 -9
Japan Gov 10 yr -0.15 -0.14 -1
Commodities Mar 06 Feb 28 % Change
Brent Crude ($/bbl) 46.12 50.08 -7.91%
Gold ($/oz) 1659.60 1652.00 0.46%
Copper ($/lb) 2.57 2.57 0.00%
Currencies Mar 06 Feb 28 % Change
$ per £ 1.303 1.277 2.04%
€ per £ 1.152 1.163 -0.95%
¥ per $ 105.345 107.865 -2.34%

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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