Global Markets Update Monday, 2 March 2020

Posted on 02 Mar 2020

Global stocks plunged, suffering their worst one-day sell-off in two years, on news of several significant coronavirus outbreaks outside of China. The sharp rise in cases in Iran and Italy, as well as the existing outbreak in South Korea, meant that for the first time more new cases were reported outside of China than within China. Most markets are now in a technical correction, having fallen at least 10% from their recent peaks in January. Indeed, the FTSE All-World lost almost 13% over the week, wiping out six months of gains and lopping nearly $6tn off the value of global equities.

Airlines and travel firms were among the worst performers, and financial stocks were also hit badly by a sharp drop in longer term bond yields.

Global Market Update

UK
The FTSE 100 fell 11.1% over the week, taking the index to levels last seen two years’ ago.

The UK government said it would be prepared to abandon trade talks with the EU and prepare for trading on WTO terms if no progress had been made by June.

Drinks giant Diageo warned its profits will fall this year, as bars and restaurants in China are forced to close due to the coronavirus outbreak.

US
The S&P 500 plunged 12.6% over the week, its worst seven-day performance since 2008. The fall eradicates the gains made over the last six months and is the quickest correction since the Great Depression. 

US bank stocks fell into a bear market, having fallen at least 20% from a recent peak.

Federal Reserve chair Jay Powell said that the central bank would “act as appropriate” to support growth. Mr Powell noted that the Covid-19 outbreak presented an “evolving risk” for the US economy, but said economic fundamentals were still strong.

Democrat presidential candidate Bernie Sanders came second to Joe Biden in the South Carolina primary.

US personal incomes rose 0.6% in January from the previous month. This was the largest monthly increase in almost a year.

Europe 
The FTSEurofirst 300 dropped 12.2% over the week, their worst week since the financial crisis.

Italy warned that the EU should offer flexibility on its budget targets should the coronavirus outbreak in its industrialised northern regions have a prolonged impact on an economy already teetering on the edge of a recession.

The European Central Bank downplayed the chances of cutting rates soon, saying it was too early to tell whether the outbreak would have a lasting effect on inflation. 

German inflation edged up to 1.7% in February, the fastest rate of expansion since March 2019. 

The IFO index of German business sentiment rose to a stronger-than-expected 96.1 in February, compared to 95.9 in January.

The French government pushed through its controversial pension reforms by decree, overriding parliament and provoking outrage from opposition parties.

Danone scaled back its sales growth and profit margin targets for 2020 as the coronavirus dents demand in China, its second-largest market. Anheuser-Busch InBev also missed earnings expectations.

Japan 
The Nikkei 225 lost 10.5% over the week.

Japan announced that all schools will shut starting 2 March and urged companies to adopt remote working, stagger shifts and hold online meetings to reduce the spread of the coronavirus outbreak.

Pacific Basin
China’s official manufacturing purchasing managers’ index fell to an all-time low of 35.7 in February, down from 50 in January. The previous lowest reading was 38.8 in November 2008, during the financial crisis.

Chinese stocks fared better than many other stock markets over the week. Technology and internet companies have benefitted from higher spending from consumers forced to stay at home, while healthcare and biotech stocks have been boosted by hopes that they will be able to develop an effective treatment for the Covid-19 virus or will sell more products due to the epidemic. 

Malaysia faced a political crisis after Mahathir Mohamad, its prime minister, resigned, threatening the future of the country’s ruling coalition. 

Emerging Markets
Riot police were deployed on the streets of Delhi in an attempt to end days of religious violence following the Indian government’s introduction of a new citizenship law that discriminates against Muslims. India’s GDP expanded 4.7% in the final three months of 2019, slightly above the previous quarter's 4.5% increase.

Mexico’s GDP shrank 0.1% in the final quarter of 2019. President Andrés Manuel López Obrador has struggled to boost growth to fund his ambitious welfare and infrastructure plans.

Turkey’s GDP grew 1.9% quarter-on-quarter in the last three months of 2019, with growth fuelled by continued cuts in interest rates. Tensions between Turkey and Russia escalated after the former accused Russia of allowing a deadly attack that killed 33 troops.

Bonds
The yield on the 10-year US Treasury touched a fresh record intraday low of 1.14%, below its previous record low of 1.325% set on July 6, 2016 in the aftermath of the United Kingdom’s Brexit vote. The 30-year bond yield also touched a new all-time low of 1.64%. The rally means the US yield curve is at its most inverted since October 2019.

Yields on core European bonds moved further into negative territory, with the 10-year German Bund closing the week at -0.61%.

US junk bond funds suffered their largest outflows since early 2018, with spreads over Treasuries widening sharply amid fears of the impact on the coronavirus on company profits.

Commodities

Oil prices have fallen more than 20% from their highs in early January, with Brent crude closing the month at just above $50 a barrel. FGE, an energy consultancy, is now forecasting that global demand growth for oil will be zero in 2020, meaning it will fail to rise for the first time since the financial crisis.

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