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The FTSE 100 is called to open 44 points higher at 7426. Asian stocks and U.S. and European equity futures recouped some of Tuesday’s losses after signs that China may be planning to offer more support to its economy, reeling from the virus-induced slowdown. Equity benchmarks rose in Tokyo, Hong Kong and Sydney, while Shanghai dipped from the highest level in about four weeks. China’s latest moves to aid growth include possible bail- outs for some airlines, Bloomberg reported Wednesday. The yen dipped. Treasuries held gains, and the yuan continued to trade weaker than 7 per dollar, pointing to some enduring concerns about the coronavirus impact. Wall Street closed slightly lower; Apple Inc. ended off of its lows after its sales warning had triggered Asia’s sell off yesterday. Brent crude was set for the longest run of gains in more than a year as U.S. sanctions on Russia’s largest producer and conflict in Libya shifted the focus to supply threats from virus-driven demand concerns.
In this week’s Diary the focus remains on the economic consequences of the coronavirus, what the authorities are doing and the impact on business. Also, an instant reaction to the appointment of the new Chancellor of the Exchequer.
Coronavirus ripples are spreading out from Wuhan bringing uncertainty to financial markets. This week’s Diary delves a bit deeper into the investment consequences of a genuine unknown.
Boeing announced its latest quarterly results at the end of January, revealing its first annual loss in more than 20 years. While the costs from the grounding of the 737 Max were lower than feared, Boeing’s difficulties still have no end in sight, with the fallout of its recent troubles likely to last into 2023.
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Although stock markets started 2020 in a euphoric mood with Phase 1 of the US-China trade deal and signs of economic stability in the eurozone and China boosting the outlook for global growth, any improvement is now likely to be delayed by coronavirus. Given the timing during China’s Lunar New Year holiday and the behavioural response, some planned consumption – particularly travel and tourism – may not be recovered. While other epidemics had no lasting impact on financial markets, a period of uncertainty seems inevitable in the short term.
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.
Central banks are easing monetary policy once again. Bond investors see this as pre-emptive action ahead of a global economic slowdown, perhaps even recession, whereas equity investors anticipate this will fuel a pick-up in corporate profitability by boosting GDP growth. Time will tell, but for now bond yields are at new lows – the German and Swiss governments can borrow at a negative interest rate for up to 50 years, and the UK 10-year gilt ended the month at 0.6%.
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