24th February 2020

Stock markets sold off last week due to ongoing concerns about the coronavirus outbreak, particularly after several key companies (notably Apple) warned of supply disruptions. This prompted safe havens to rally, with gold and sovereign bonds doing particularly well. Developments around the coronavirus will likely be the key driver of markets this week, with share markets sharply down this morning.

Last Week

  • Stocks sold off due to concerns around the coronavirus
  • Bond markets rallied as yields fell
  • Gold continued to march higher
  • Economic data was mixed
  • UK inflation reached a six-month high

This Week

  • Newsflow on the coronavirus is likely to be the key driver of markets this week (with markets sharply down this morning).
  • It’s pretty quiet this week in terms of economic data points: UK house price data is out on Friday, German growth data is on Tuesday, US housing data on Wednesday and eurozone confidence data on Thursday.
  • US politics will also feature, with the final Democratic presidential debate ahead of Super Tuesday next week.

Last Week’s Highlights​

Stock markets had a poor week, with concerns around the coronavirus dragging down markets at the end of the week. UK markets held up relatively well (cushioned by healthcare, oil and some sterling weakness) but were still down, with Japan and emerging markets the hardest hit.

Bond markets continued to go higher, with yields falling over the week, as UK sovereign yields got close to the record-low levels they touched last summer. The US 30-year bond yield fell heavily over the week and reached a lowest-ever-level of 1.85%. This push lower in yields caused nearly all areas of the bond markets to rise, with spread widening being outweighed by falling yields in all areas other than emerging market debt. The total level of negative yielding debt is also beginning to pick up again, with the number hovering just below $14trn (having been $11trn at the start of the year).

Gold has had a big push higher as investors have rushed into “risk-off” assets. Gold was up by 4% last week and is now at its highest level since the back-end of 2012.

Economic data was mixed over the week, but ultimately the bad news associated with Friday’s flash PMI numbers won the day, consolidating a negative week for markets. US regional manufacturing gauges surprised to the upside early on in the week, but then on Friday we had a raft of bad numbers for the PMI survey data for the month of February: showing the concerns around the coronavirus impact. US composite Purchasing Managers’ Index data fell sharply into contractionary territory for February; indicating the first decline in US private sector activity since 2013.

European versions of this data were actually quite strong, but off of a low base. In the UK, the composite reading held steady at 53.3 (anything above 50 is viewed as expansionary), which represented its best level since September 2018. Eurozone data also showed signs of picking up: rising to 51.6 in February, with the rise largely attributable to a rise in the services component.

UK inflation hit a six-month high, with CPI rising to an annualised rate of 1.8% for January, having been as low as 1.3% in December. The UK jobs market also showed good signs of resilience, with the employment rate (the share of working age people in work) rising to 76.5% which is the highest level since records began in 1971. The unemployment rate was unchanged at a near record-low level of 3.8%. Although these numbers are good, the one chink was the wage growth data which dipped to 2.9%, representing the slowest rate in more than a year.

Asset Returns

Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source: Bloomberg.

Gold is at its highest level since December 2012 and has risen over 13% so far this year…

Source: Bloomberg

Rory McPherson
Head of Investment Strategy