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The FTSE 100 is called to open 101 lower at 5603. Stocks in Asia extended a rally into a third day on light volumes as investors weighed signs of a slowing rate of coronavirus spread against more fatalities. Oil continued to swing ahead of a key meeting of suppliers. Japanese shares climbed more than 1%, with shares in Korea and Australia also higher. Hong Kong and China underperformed. S&P 500 futures rose to session highs as of 6 a.m. in London after fluctuating earlier, following a rocky session Tuesday when gains fizzled late in the day. The Australian dollar slipped after S&P Global Ratings cut the country’s credit-rating outlook to negative from stable. Treasuries were steady after this week’s dip.
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The change in political priorities from the end of 2019 to the start of 2020 is stark. In the UK, Boris Johnson’s catchy rhetoric of ‘getting Brexit done’ and ‘levelling-up’ the economy has been shattered by the unprecedented curtailment in civil liberties announced last week, and the rapid preparations underway for the biggest crisis the NHS has ever faced.
Big events and small matter during times of change. Both feature in this week’s Diary. People and businesses are adjusting to the new reality with financial markets providing the mirror that allows us to see ourselves.
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The global equity sell-off continued apace in March alongside the spread of new Covid-19 infections outside China, in particular in Europe and the US. What was originally perceived as a containable health crisis has morphed into a financial liquidity challenge, where debtors struggle to meet commitments and investors sell assets to meet various demands on their finances.
Global stock markets reached new all-time highs in early February before suffering a sharp and broad based sell-off as it became clear that Covid-19 had not been contained within China and would likely reach most countries to varying degrees. The economic impact – mainly the result of public health countermeasures rather than sickness or death – is unknown in magnitude or duration as there are no precedents in the current globalised supply chain world. The virus is expected to peak within the next month or so, though this is a quickly evolving situation.
Global shares returned 3% in December and 9% over the final quarter although this was largely eroded by an 8% rise in sterling to $1.33 for UK-based investors. While the decisive Conservative election victory helped the FTSE 100 gain 196 points last month to 7,542, the total return of 3% (including dividends) lagged trade-related rallies in the US, Japan and Asia (9%) and the eurozone (5%).
Global growth continues to slow with a widening gap between advanced and emerging economies. The OECD recently downgraded its 2019 global GDP forecast to 2.9% (1.5% advanced/4.5% emerging) but contracting global trade and the repercussions of the US/China tariff dispute mean there are still downside risks. Although negative real interest rates and robust consumer spending should avert recession, the lack of new fiscal stimulus suggests a period of stagnation for many advanced economies.
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