Market Update: Concerns about coronavirus continue to hover over markets

Market Update: Concerns about coronavirus continue to hover over markets

3rd February 2020

LAST WEEK – KEY TAkeAways

Global: China strives to contain coronavirus

  • Global shares fell as the number of cases and the death toll from the coronavirus rose although the spread outside of China has been limited;
  • The World Health Organization declared the outbreak an emergency, but it also said measures that disrupt international travel and trade were unnecessary.  
  • Omnis view: Just as there were signs of a recovery in global economic growth, the coronavirus is likely to curtail activity in China to such an extent that it impacts other regions. The key question is how long authorities will take to contain the spread of the virus. Once a tipping point is reached, activity will pick up again and make up for lost demand. For now, fear reigns but in previous outbreaks of this nature the impact on the markets has been temporary.

UK: Pound strengthens as Bank of England pauses  

  • The pound strengthened against the US dollar after the Bank of England (BoE) kept interest rates on hold at its meeting on Thursday;
  • However, the Bank downgraded its forecast for UK economic growth over the next three years due to the impact of Brexit and a fall in business productivity.
  • Omnis view: In recent months the BoE seemed willing to cut interest rates to counter any form of Brexit, so the decision to leave them unchanged could be seen as a vote of confidence in the UK economy. The Bank also switched its outlook for future rate rises from ‘limited and gradual’ to whenever necessary to manage inflation (rising prices).

US: No adjustment to interest rates but economy slows

  • US shares briefly rallied as the Federal Reserve (US central bank) also decided against changing interest rates at its meeting last week;
  • The US economy grew at 2.1% in the fourth quarter of 2019, its slowest pace since 2016, as consumer spending appeared to weaken[1].
  • Omnis view: Economic growth may have slowed at the end of 2019, but not enough for the Federal Reserve to justify lowering rates now. We still think a cut is likely at some point this year.

Europe: Economic growth stalls

  • There was bad news for European shares after economic growth in the eurozone slowed in the fourth quarter of 2019 as the French and Italian economies unexpectedly shrank.  
  • Omnis view: With interest rates already negative in the EU, the European Central Bank will have to consider other measures to boost the region’s economy, such as increasing its bond buying programme (known as quantitative easing).  

Corporate earnings: Tech sector provides respite

  • Apple, Facebook and Amazon all beat profit expectations in the fourth quarter of 2019, although shares in Facebook fell as its rate of growth slowed.  
  • Omnis view: Earnings fell in 2019, so we will be closely monitoring company reports in 2020 for signs of a recovery.

LOOKING AHEAD - TALKING POINTS

Economic data

  • Wednesday- US imports, exports and balance of trade in December;
  • Friday- Chinese imports, exports and balance of trade in January; US non-farm payrolls (job creation) in January.

[1] https://www.bea.gov/news/2020/gross-domestic-product-fourth-quarter-and-year-2019-advance-estimate

 

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.