Global Markets Update Monday 27 January 2020

Posted on 27 Jan 2020

Global stocks retreated as confirmed cases of the coronavirus surged and the outbreak spread outside China. At the start of the Lunar New Year period, which normally sees millions of people travelling to visit families, several Chinese cities have imposed significant travel restrictions, while Wuhan, the source of the outbreak, is in effective lockdown.

The US threatened to impose tariffs on UK car exports if the UK pushes ahead with plans for a digital services tax in April – during the week, France offered to defer its plans for digital tax. The EU and US also clashed over EU proposals for a carbon tax.

Global Market Update

UK
The FTSE 100 lost 1.2% over the week. 

The flash IHS Markit/Cips composite purchasing managers’ index rose to 52.4 in January, from 49.3 in December, with all three sectors rebounding. Manufacturing activity nearly reached the 50 level that separates expansion from contraction, while services and construction rose to levels last seen in the autumn of 2018.

The CBI quarterly industrial trends survey indicated that the proportion of manufacturers expecting business to improve was 23% higher than the share predicting conditions to worsen. This signals the highest level of optimism since 2014. 

The better-than-expected purchasing managers’ index data, as well as a strengthening employment data, lowered the probability that the Bank of England will cut rates.

US
The S&P 500 fell 0.7% over the week.

Europe 
The FTSEurofirst 300 slid 0.2% over the week. Luxury goods makers who are heavily reliant on Chinese sales, slipped.

The flash estimate of January’s eurozone composite purchasing managers’ index remained unchanged at 50.9, disappointing expectations of a modest increase. Service sector activity slid to a weaker-than-expected 52.2, down from 52.8 in December, while manufacturing activity rose to a five-month high of 47.8, up from 46.3 in December.

The German composite purchasing managers’ index rose to a five-month high of 51.1 in January as the country started to shake-off the long slump in its manufacturing sector that has weighed on growth for two years. However, the French purchasing managers’ index slid to a four-month low of 51.1 as public sector strikes disrupted economic activity. Growth in the eurozone outside Germany and France slowed to a six-and-a-half year low, with particular weakness in Spain and Italy.

Japan 
The Nikkei 225 declined 0.9% over the week.
 
Pacific Basin
As the Chinese authorities implemented a growing number of measures to deal with the coronavirus crisis, including closures of entertainment and tourist venues, S&P warned that a worsening of the outbreak could reduce Chinese economic growth by 1.2% this year. Both Chinese and Hong Kong shares fell around 4% over the week. 

Emerging Markets
Malaysia’s central bank unexpectedly cut interest rates by 25bps to 2.75%. This followed a similar surprise last week, when South Africa’s central bank cut its policy rate by the same amount to 6.25% following a drop in inflation.
 
Bonds
The yield on the 10-year US Treasury bond closed the week at 1.69% while the yield on the 10-year German Bund closed at -0.34% on growing demand for safe-haven assets.

Commodities
Oil prices suffered their largest weekly decline in about 13 months, with Brent crude closing at just above $60 a barrel, amid concerns over the economic fallout from the coronavirus outbreak.

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