Monday saw Chinese stocks tumble as fears over the potential economic impact of the Coronavirus dragged markets lower. Unsurprisingly, it was Chinese markets that were hit hardest, stumbling to a 2020 low. Commodity markets also suffered in the sell-off, with oil prices dropping well below $60 a barrel for the first time in three months as traders scrambled to assess the impact of the virus on demand. Bourses in Europe also bore the brunt of investor panic as indices in the UK, France and Germany all fell over 2%. Worse was to come on Thursday as the death toll in China passed the 200 mark, driving oil prices even lower and momentarily inverting the US Treasury yield. The International Monetary Fund (IMF) said it was too early to assess the economic damage the virus is inflicting in China, but Wall Street economists estimate that as much as 0.6% could be wiped from Chinese GDP already.
Interestingly, the term ‘When America Sneezes…’ originates from 19th century Europe, with Prussian diplomat Klemens Wenzel von Metternich often credited as its creator. Unsurprisingly for the Napoleonic era, Metternich’s phrase was actually “when France sneezes, the whole of Europe catches a cold.” At a time of great upheaval in Europe it is somewhat ironic then that the week that was marks the UK’s exit from the EU as 11PM GMT tonight will be the end of our membership of the bloc and the beginning of months of trade negotiations.
It’s been a week full of exits on domestic shores as Bank of England Governor, Mark Carney also bowed out, delivering his final address to the media. In what was a hotly anticipated “Super Thursday”, the bank chose to hold rates at 0.75%, referencing signs that the UK economy may be set to accelerate as Brexit uncertainty fades. Recent weak data, especially for inflation, had stoked speculation that Mark Carney could go out with a bang and cut rates, however, he remarked that the bank was still ready to cut in the future if needed.
There was some positive news during a torrid week for markets, coming in the form of online retailer Amazon’s stellar festive results. Its Q4 results were well ahead of consensus as the expansion of its one-day shipping roll out came in under budget and membership to its Prime service notched a 50% rise in two years. Shares soared as much as 13% in after-hours trading, putting the retailer firmly back above the $1 trillion market cap level. Stellar results were also reported by Apple, the world’s largest company, which beat expectations on the back of strong iPhone sales.
The week ahead
Although January is more associated with new beginnings, even being named after Janus, the Roman god of new starts, it will be February that will usher in a new dawn when the UK will officially be out of the EU.
Whilst our first week going it alone for the UK may grab the majority of the headlines, increased cases of the Coronavirus, will provide an unsettling backdrop to what promises to be a busy week of economic data releases. With events in China firmly in investors mind, Caixin Manufacturing PMI will be released by Markit and could well set the tone for the rest of the week. With concerns that the deadly virus could start having an impact on an already staling Chinese GDP, the number should make for interesting reading. With the sector still in expansion but slowing, many will be hoping that the world’s second largest economy does not begin to falter.
With a heightened sense of patriotism, no doubt washing over the UK, all eyes will still be on events in the EU as the President of the European Central Bank, Christine Lagarde, is due to testify before the European Parliament. As head of the ECB, which controls short-term interest rates, she arguably has more influence over the euro's value than any other person. Investors will no doubt be scrutinising her speeches as they are often used as a tool to drop subtle clues regarding future monetary policy.
The first Friday of the month is wrapped up as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data will be accompanied by Average Hourly Earnings, allowing us to gauge how inflation may manifest in the world’s largest economy.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2020.