Market round-up 20-24 January

Thomas Watts


This week

Moving markets
Using many factors, including weather conditions, debt levels (debt accumulated coupled with ability to pay), time since Christmas, time since abandoning new year’s resolutions, chances of catching a virus and the time until the Easter break, scientists have calculated that the beginning of the week was the most depressing day of the year. 

“Blue Monday” as it has been termed, has been awarded to the third Monday of January and signals the gloomiest time of year here in the UK. With all the misery around, it was unsurprising that one of the UK’s favourite Small Cap stocks, Fevertree, lost its fizz completely. Monday saw one of the once darlings of the stock market plummet c.30% as it issued a profits warning after a disappointing festive trading period. With results for British retailers underwhelming on the whole over Christmas, it was refreshing to see online retailers such as Asos in the black, making material gains over the fourth quarter. The online fashion company was boosted by Black Friday deals, reportedly selling one black dress every second and a wedding dress every minute during the sales event. 

Domestic markets were also dragged down early in the week by comments from Chancellor Sajid Javid, that Britain would not commit to sticking to EU rules post Brexit Trade talks. His words dragged sterling back towards the $1.30 mark in thin trading as US markets closed in observance of Martin Luther King Day. 

Worse was to come for the FTSE on Tuesday, as the blue-chip benchmark suffered its weakest day in two weeks. The spread of the Coronavirus in China rocked global bourses throughout the week as the number of deaths and contractions of the virus stoked memories of the deadly SARS virus that Chinese authorities failed to contain over 15 years ago. It seems the epidemic could not have come at a worse time, a week before the Chinese Lunar New Year, a time well known for travel. With 835 confirmed cases by Thursday and reports that the virus had made its way to the US and even Saudi Arabia, it was unsurprising that pharmaceutical stocks outperformed a panic-stricken market. With sales of rubber gloves and surgical masks also soaring, Chinese authorities saw it fit to ban the resale of such items for extortionate prices on far eastern auction websites as consumers clambered to protect themselves. On the news, Intercontinental Hotels and British Airways both fell over 3% during midweek trading. 

Chinese markets were the hardest hit with the Shanghai composite falling 3% on Thursday alone, dragging the broader Asian benchmark down with it. Safe-haven assets such as gold and treasuries were in demand, steadily rising throughout the week. 

In the currency markets, the Euro fell to a six-week low vs the dollar with German Bond yields hitting a two-week nadir as Christine Lagarde, Head of the European Central Bank, struck a slightly more dovish tone than some commentators had expected at an address on Thursday.

UK interest rates
It was not all doom and gloom however, as better than expected data from the UK has lowered the chances of a UK interest rate cut next week. Figures released this week showed employment had risen by 208,000 in the three months to November, the largest rise since January 2019 and comfortably ahead of consensus. Stronger than expected PMI data on Friday also pointed towards a rebounding UK economy. UK equities, and European equities opened up strongly on Friday, reflecting the more upbeat data. 


Next week

The coming week ushers in the Chinese New Year, an event thrust into the spotlight due to the recent spread of the deadly infection, the Coronavirus, claiming up to 850 confirmed cases. It seems that some famous traditions for the new year celebrations may have to be put aside this year, such as the bad luck associated with washing clothes, after all the upcoming month, February, derives from the Latin term Februum, meaning purification. 

Although events in China will most probably dominate market movements in the coming week, there is a raft of domestic economic news released for UK investors to analyse. The majority of this information arrives on Thursday as the Bank Of England ushers in the first “Super Thursday”, a positive smorgasbord of economic data. With analysts torn as to whether there will be a rate announcement on the day, split almost 50/50 in most surveys, all eyes will be on the Bank of England’s Governor, Mark Carney. The Governor’s address to the media will also include a detailed breakdown on how the Monetary Policy Committee voted, with minutes from their last meeting also being published. 

The Bank of England’s much awaited statement comes a day after their equivalent across the pond, the Federal Reserve, also announce their views on their own economy. With the Fed now firmly on a rate cutting trajectory, their words will be dissected heavily for clues and hints as to future moves. Wednesday will see their words run alongside a plethora of US tech behemoth earnings reports such as Facebook and Microsoft, giving us a comprehensive view as to how the world’s largest economy is faring. 

The week is rounded off by more US data as Core Price Index numbers are released by the Bureau of Economic Analysis. The figures will detail the change in the price of goods and services purchased by consumers, excluding food and energy. This differs from core CPI in that it only measures goods and services targeted towards and consumed by individuals. Prices are weighted according to total expenditure per item giving important insights into consumer spending behavior. The data is also rumoured to be the Federal Reserve's favourite measure of inflation.