Investment Markets Weekly
27 January 2020
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Last Week
  • Markets: Global equities’ strong start to 2020 stuttered last week as coronavirus concerns pulled equities lower by 0.4% while helping global bonds (currency hedged) push higher by 0.7%. Asian and Emerging market equities suffered most, both shedding close to 2%. For 2020 as a whole though global equities are still 3.3% higher, marking a strong start to the year.
  • Global Growth: Economic data last week gave further weight to the view that the outlook for the global economy is improving. This was most visible in the provisional January estimates for Purchasing Managers Indices (PMIs) published in Europe and Japan last week. In the Eurozone the January manufacturing PMI came in at 47.8. This was the strongest reading since August. Meanwhile the Japanese reading for the manufacturing sector was 49.3, the strongest since August.
  • Central Banks: Neither the European Central Bank (ECB) nor the Bank of Japan made any changes to monetary policy at their meetings last week. President Lagarde gave very little away about the ECB’s review of its monetary policy, which won’t be completed until the end of the year. Right now markets seem content to play along with the notion that the year-long policy review means no meaningful action from the ECB over that period.
  • World Economic Forum/Trade: As usual the World Economic Forum in Davos created plenty of headlines. Of most interest to investors were President Trump’s comments on trade when he said he is aiming to agree a trade deal with the European Union (EU) by the Presidential election in November, while also looking to reform the World Trade Organisation (WHO). On this basis, trade is not going to disappear as a theme for investors any time soon.
  • Coronavirus: The outbreak and spread of the coronavirus caused some market volatility last week with equities initially selling off, but later recovering. This was on the back of the WHO decision not to declare a global emergency. Its economic impact on China and on markets will depend on the scale of the outbreak and on how well its progress can be contained. The SARS outbreak in 2002-3 is a good precedent. Most equity markets struggled on the initial outbreak of SARS, losing around 5-6% in Q1 2003, but recovered strongly subsequently. In contrast to the initial SARS outbreak, Chinese authorities have put in place strong containment measures which should slow the virus’ progress.
Chart of the Week
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  • Last week marked a milestone for Winnebago Industries, the US manufacturer of motorhomes as its share price hit an all-time high, reaching all the way back to 1980. The improving fortunes for RVs (recreational vehicles) tends to be a good lead indicator for sectors of the US economy that are depending on US consumers such as autos and housing. All in all this suggests that Middle America is doing just fine right now!
This Week
  • Economic Updates: Lots of economic news for investors to digest this week, as they look for more evidence of recovery in the global economy. The initial estimate of Q4 US GDP growth is due (2.2% growth expected), while December data on housing and durable goods spending is also due. In the Eurozone, January readings of IFO Business sentiment in Germany on Monday will be keenly watched for any signs of improvement there.
  • Central Banks: On the Central Bank front, decisions are expected from the US Federal Reserve (the Fed) and the Bank of England this week. No change is anticipated at either meeting, but the Fed press conference on Wednesday will be dissected for signals about its next move, following the signing of the Phase 1 trade agreement between the US and China. There may also be interest in comments from the Bank of England, given investors think an interest rate change is more likely there in the short term, compared to the other main central banks.
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