LAST WEEK – KEY TAKEAWAYS

Coronavirus: Falling oil prices halt rate cut rebound

• Concerns about the impact of the coronavirus on the global economy continued to hit markets as the number of new cases rose around the world;
• The prospect of central bank support temporarily boosted shares in the middle of the week as the Federal Reserve (the US central bank) cut interest rates by 0.5%[1];
• However, falling oil prices dragged down shares at the end of the week after the Organization of the Petroleum Exporting Countries (OPEC) failed to agree output cuts with its partners.
• Omnis view: Lower oil prices reflect a drop in demand due to the coronavirus. Investors responded by moving money out of shares and into traditional safe havens such as government bonds, even though cheaper fuel can also benefit businesses. How quickly China, where the virus appears under control, returns to work is key for global economic growth. Likewise, how soon other regions contain the spread of the virus and therefore reduce fear levels. In the meantime, we expect governments and central banks to introduce further measures.

UK: Bank of England likely to cut rates

• Mark Carney, the outgoing governor of the Bank of England (BoE), told parliament that the committee which decides on monetary policy would be prepared to follow the example set by the Federal Reserve and cut interest rates to offset the impact of the coronavirus on the British economy.
• Omnis view: Mr Carney claimed the BoE could decide to lower rates before its next meeting on 26th March if necessary. He also said the bank is looking at other measures to support UK companies.

US: Job creation in February beat expectations

• There was some good news for the US economy when figures released by the Labor Department showed that 273,000 jobs were created in February[2].
• Omnis view: The number of jobs created exceeded forecasts and reaffirms the underlying strength of the US economy, but the news was not enough to offset the impact of lower oil prices on the country’s shares.

China: Exports drop in January and February

• Exports- goods produced in China but sold abroad- fared worse than expected in the first two months of the year, falling by 17% according to Chinese customs[3].
• Omnis view: The decline in exports shows how the coronavirus has disrupted supply chains and hampered businesses. However, there are signs that economic activity is picking up in China and other Asian countries as the number of new cases falls dramatically.

LOOKING AHEAD - TALKING POINTS

Economic data

• Monday- Japanese economic growth in the fourth quarter of 2019;
• Tuesday- Chinese inflation rate in February; European economic growth in the fourth quarter of 2019;
• Wednesday- UK economic growth in January; US inflation rate in February.

Monetary policy

• Thursday- European Central Bank interest rate decision.

UK budget

• The new Chancellor delivers his first budget on Wednesday.

1 https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm

2 https://www.dol.gov/newsroom/releases/osec/osec20200306

3 http://english.customs.gov.cn/Statics/6c376734-a6b1-4b14-83c6-5a3ba61c5893.html