Weekly Market Update

03/02/2020

Last week we saw equity markets globally selling off, led by Asian indices, and a continued flight to safety with plenty of support for gold, the Japanese Yen and government bonds. As Chinese markets reopened following the Lunar New Year holiday, domestic markets experienced heavy losses marking the worst opening in nearly 13 years. These falls came despite the central bank pumping Rmb1.2tn ($171bn) in additional liquidity into the financial system aimed at cushioning the blow of the country’s coronavirus outbreak.

While we don’t have the ability to judge how long the epidemic will last and how bad it will get, it is inevitably going to act as a drag on short-term growth figures in many parts of the world. Past outbreaks of serious illness worldwide have knocked markets temporarily but have often been followed by market recovery as and when the authorities turn the tide on the spread of the disease.

Two key nations had central bank meetings last week. As expected, the US Federal Reserve kept rates kept on hold. There were very few changes to the post-meeting statement other than to note household spending was at a moderate pace and a change in the wording to reflect the Fed would be comfortable with inflation overshooting their 2 per cent target. The US economy grew 2.1 per cent in the fourth quarter, bringing full-year growth in the world’s largest economy to 2.3 per cent, its lowest in three years.

In the UK, recent data showing a post-election improvement in business sentiment was just enough to prevent an interest rate cut in Mark Carney’s last Committee meeting as Governor before Andrew Bailey takes over in March. The news caused a rally in sterling that hit blue chips, which are big earners of foreign currency.

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