INSIGHTS

Duncan Donald

Mon, Feb 3


As the Coronavirus grows the markets brace themselves for the long term impacts

In the last week, we have seen a worrying progression of the Coronavirus predominantly in China but the footprint is increasing across the world.  The global toll of cases has risen to over 17,000 escalating at an alarming rate on a daily basis with confirmed deaths sitting at 361 at the time of writing. If we separate the sad material impacts on lives and livelihoods of those affected and focus on the economic implications of the situation what we are seeing could well turn to be the tipping point for a global recession. 

 

For the last few years, there has been a question mark hanging over the markets as trade negotiations and Brexit has weighed on the global economy but the impacts of this virus could well engulf the global economy and force the hands of the world's central banks.  Naturally with the virus holding prominence in China, the immediate impacts will be seen there. In order to curtail the spread of infection, companies have had to elongate the New Year holidays till next week, with the very real possibility of a further extension. This halt will unquestionably have a significant impact on the domestic macroeconomic data. With the global reliance on China as a manufacturer, service provider and of course, consumer the markets are already setting themselves for a downturn. 

 

As the Chinese markets opened up this morning they immediately plunged 9% lower, naturally, they were, of course, playing catch up having been closed for the holidays. Global stocks have of course also been struggling in the last week as a flight to safe-haven assets has ensued.  Even in a week where top US companies such as Apple, Tesla and Amazon reported very strong earnings the weight still remains to the downside. 

 

In the currency markets the Japanese Yen, Swiss Franc have all gained whilst the Australian and New Zealand Dollar’s have fallen. Oil has also had a tough week as many of the major airlines have elected to suspend travel to China, meaning a significant reduction in demand for oil as it toils around 51 dollars per barrel.

 

In the week ahead, all eyes will be on developments and progression of the contagion and how the World Health Organisation (WHO) deal with it. It was viewed as a positive last week when they elected to not impose a travel ban around China, this brought a rare wave of positivity to the markets, however, any change of that or the overall concern level could well have negative connotations. 

 

Last Friday was the final day of the long-held relationship between the UK and the EU as the UK officially left the EU. Whilst a few saw this as a symbolic day, the hard work for Boris Johnson and his team starts now as he has to come up with an agreeable and workable solution for the UK’s borders and of course advantageous trade deals for the country.  Last Thursday the departing Head of the Bank of England Mark Carney’s MPC Committee elected to keep interest rates on hold surprising an element of the markets and sending the pound up above 1.3100.

 

This week the key data we receive is the ISM Manufacturing data from the states earlier in the week before employment data on Friday. We also get an interest rates decision from Australia which will be interesting, as its a country that is heavily dependent upon the Chinese market.

 

The week ahead

 

Monday

Markit Manufacturing PMI - IT/FR/GE/EU 

ISM Manufacturing PMI 

Tuesday

Construction PMI – UK 

Factory Orders – US 

Wednesday

Caixin Composite PMI – China 

Retail Sales – EU 

ISM non-manufacturing PMI – US 

Thursday

Factory Orders – GE 

Construction PMI – UK 

Friday

Balance of trade – GE 

Industrial Production – GE 

Non-Farm Payrolls – US 

Unemployment Rate - US


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