Last Week - Key Takeaways

Asia Pacific: Virus claims lives and spreads outside China

• Global shares fell as the death toll rose from the coronavirus outbreak and the number of reported cases reached nearly two thousand;
• Despite the Chinese government’s best efforts to contain the virus, it has spread to Europe, the US, Australia and other countries in Asia.
• Omnis view: Efforts to limit the spread of the virus may impact economic activity, especially in the travel and transport sectors. This could add to the market’s concerns over slowing global growth, lower corporate profit forecasts and falling commodity prices.

UK: Mixed week for sterling

• The pound fell against the US dollar as the Chancellor Sajid David said that the UK would not align with EU business regulations after Brexit;
• However, the pound recovered some of those losses after figures released by the Office for National Statistics showed the employment rate rose to its highest level since 1971 in the three months to November [1].
• Omnis view: Political uncertainty picked up again following the chancellor’s comments as ruling out regulatory alignment could mean a harder Brexit. Meanwhile, a strong jobs market may give the Bank of England pause for thought ahead of its next meeting on Thursday. Investors are currently assigning a 50% chance that interest rates will be cut.

Europe: ECB leaves interest rates unchanged

• The euro weakened against the US dollar after the European Central Bank (ECB) decided not to raise interest rates at its latest meeting on Thursday;
• There was further bad news for the euro when figures released by research firm IHS Markit showed EU business activity falling short of expectations in January.
• Omnis view: On a more encouraging note, activity in the export-heavy German economy, which is considered the engine of Europe, improved as trade tensions between the US and China eased.

Companies: Netflix misses on US subscribers

• Netflix beat profit forecasts in the final quarter of 2019, but its shares fell as it failed to meet expectations for new subscribers in the US.
• Omnis view: The markets would usually welcome Netflix’s results as technology shares have powered the markets over the last few years, but the streaming service faces increasing competition in the US. Fourth quarter earnings are still forecast to decline according to research firm FactSet, although by 1.9% rather than 2.4% reported the previous week [2].

LOOKING AHEAD - TALKING POINTS

Economic data

• Thursday- EU unemployment rate in December; US economic growth in the fourth quarter;
• Friday- Japanese unemployment rate in December.

Monetary policy

• Wednesday- Federal Reserve (US central bank) interest rate decision;
• Thursday- Bank of England interest rate decision.

Corporate earnings

• Facebook, Apple and Amazon are the next of the FAANG group of technology shares to report profits this week, alongside industry bellwether Caterpillar.

Brexit

• The UK officially leaves the EU on Friday and enters into a transition period which is due to end on 31st December.

[1] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/timeseries/lf24/lms

[2] https://insight.factset.com/sp-500-earnings-season-update-january-24-2020

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.