INSIGHTS

Duncan Donald

Mon, Jan 27


Markets fall as Coronavirus threat deepens

 

In the space of a week, the focus of the markets has completely shifted. The concerns in the Middle East and global trade deal issues seem to have abated for now as the Coronavirus concerns eclipse the world economy. In the space of a week, we have gone from a handful of cases in China to 80 confirmed dead with 2700 infected predominantly in China. There are now also confirmed cases in France, Japan, USA, Canada, Singapore, Thailand and the UK.  In the early part of last week market concern seemed more isolated to the Yuan which started to fall, but as we came towards the end of the week real concerns were evident in the price action of the markets, further emphasised by the downwards trajectory evident at market open in Asia this am. 

 

The flight to safe-haven assets is in full effect with Gold, Japanese Yen and Swiss Franc being heavily bought. With some Chinese cities being on lockdown, there is also concern over the slowdown in productivity and consumption in the region and further slowdown caused should the virus spread across the globe. With this in mind, it is forecast air travel demand will be one of the first sectors hit by a slowing in demand, meaning Oil prices have taken a significant hit,  falling to nearly 20% to $52 per barrel.

 

With global stocks having enjoyed a huge rally into the end of 2019 and early 2020 all eyes have been on the earnings reporting seen over the last 2 weeks which have broadly been positive, however, concerns over Coronavirus have sent stocks significantly lower over the last few sessions with a fall over 1% expected at today’s open (based on futures pricing) is expected that they will remain vulnerable to any escalation of infection. With the evident  flight to safe-haven investment seen, US Treasury Bonds have been one of the most significant benefactors making multi-month highs. 

 

In the Eurozone last week brought Christine Lagarde, new Head of the European Central Banks second interest rate policy meeting. Having been slightly more dovish than the markets expected we saw the EUR/USD rate fall from 1.1120 to 1.1020. The week ahead brings the US Federal Reserve Interest rate-setting meeting, where its expected rates remain at 1.75% with all eyes on Jerome Powell’s committee for guidance on the rate path for the coming year. 

 

In the UK, this is the week where PM Boris Johnson will effectively take the UK out of the EU. With that in mind, the actions of the UK Monetary Policy Committee will be in focus on Thursday when we hear from Mark Carney and his team, last weeks macroeconomic data was slightly more positive, following some terrible Retail Sales data the previous week. MPC members had hinted at rate cuts previously, so with Brexit progressing the market awaits a more structured and formal update. 

 

The Week Ahead 

Monday:

  •         Ifo Business Climate – Germany
  •         Home Sales - US

Tuesday:

  •         Durable Goods Orders – US
  •         Richmond Fed Manufacturing Index - US

Wednesday:

  •         Consumer Confidence – Japan
  •         GfK Consumer Confidence – Germany
  •         Loans to Company – ECB
  •         Fed Interest Rate Decision - US

Thursday:

  •         Unemployment Change – Germany
  •         Business Confidence – ECB
  •         Bank of England Interest Rate Decision – UK
  •         GDP - US

Friday:

  •         Consumer Confidence – UK
  •         GDP – France
  •         NBS Manufacturing Index – China
  •         GDP – Eurozone
  •         Personal Spending -US




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