LAST WEEK – KEY TAKEAWAYS

Coronavirus: Shares fall as new cases reported

• Measures taken by the People’s Bank of China (the Chinese central bank) to offset the impact of the coronavirus helped global shares rally early in the week;
• However, investors shifted their money out of shares and into government bonds- considered safe haven assets during times of market turbulence- at the end of the week as new cases were reported in China, South Korea and Europe.
• Omnis view: To a degree, shares are relying on support from the Chinese central bank, but that was not enough to prevent the sell-off on Friday. The markets will continue to fluctuate until the spread of the virus reaches a tipping point. The longer this takes to materialise, the greater the impact on global economic growth.

UK: Business activity continues to grow

• UK business activity increased for the second month in a row in February, according to figures released by research firm IHS Markit[1].
• Meanwhile, the annual inflation rate in the United Kingdom jumped to 1.8% in January, its highest level in six months, up from 1.3% in December and above market expectations.[2]
• Omnis view: UK businesses are benefiting from a more stable political backdrop since the Conservative party’s comprehensive victory in the general election, although Brexit uncertainty could intensify later in the year as talks over a free trade deal get underway.

US: Slowing business activity weighs on shares

• There was bad news for US shares as figures released by IHS Market showed business activity declining in February to its lowest level since 2013[3];
• However, the outlook for the US economy has improved slightly, according to the minutes of the latest Federal Reserve (US central bank) meeting.
• Omnis view: The minutes suggested the Federal Reserve would not change interest rates for the time being, although they discussed lowering them at January’s meeting. We still expect the Fed to keep rates low for the rest of the year.

Japan: Economy shrinks in final quarter of 2019

• Japanese shares fell after figures released by the Cabinet Office showed that the country’s economy shrank by 6.3% (on an annualised basis) in the fourth quarter of 2019[4].
• Omnis view: A rise in a sales tax introduced in October has weighed on the Japanese economy to a greater extent than expected. The government and the Bank and Japan have pledged to continue to take whatever measures are necessary to support it.

LOOKING AHEAD - TALKING POINTS

Economic data

• Thursday – European business climate indicator;
• Friday - Japanese unemployment rate in January.

1 https://ihsmarkit.com/research-analysis/flash-uk-pmi-signals-economic-rebound-sustained-into-february-February2020.html

2 https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

3 https://ihsmarkit.com/research-analysis/us-flash-pmi-signals-first-fall-in-business-activity-since-2013-Feb20.html

4 https://www.esri.cao.go.jp/en/sna/data/sokuhou/files/2019/qe194/pdf/gaiyou1941_e.pdf

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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.