Weekly Market Wrap 27/01/2020-31/01/2020

Marius Paun | London, UK | Senior dealer | Friday, 31st January 2020

WHO declares Coronavirus a global health emergency

On Thursday the officials from the World Health Organization declared coronavirus a public health emergency. They emphasized that this action does not represent a vote of no confidence in China, they actually said the country has done ‘tremendous things to limit the spread of the virus to other nations.’ Their biggest concern is countries with weaker health systems. The world equities tumbled sharply in the run-up to the announcement with gold spiking above $1580.

In a unanimous decision, the Federal Open Market Committee in the US left their cash rate unchanged at 1.75%. At the press conference Chair Jerome Powell said that uncertainties remain, especially related to coronavirus outbreak, and that inflation is expected to move close to 2% over the next few months. The policy was also dubbed ‘appropriate as long as data is consistent with the outlook’.

In the UK, the Bank of England kept its benchmark interest rate on hold at 0.75% at its latest monetary policy meeting on Thursday. Members of the Monetary Policy Committee voted by a majority of 7-2 to maintain the status quo. The target for assets purchases was also left unchanged at £435 billion. Amid a growth outlook revised lower and inflation expected to stay below target until 2022, the tone was considered to be dovish i.e. potential rate cuts further down the road. In reaction, the pound posted a steady rally against the US dollar trading around 1.3150 going into the weekend.

On the ‘Britain-leaving-the-EU’ subject, it was officially done at 23:00 GMT on Friday and now follows the so-called ‘transition period’. Both sides have until December 31st 2020 to strike a trade agreement.  The period can be extended by up to two years if the UK and EU agree, but that is now rather unlikely, at least according to Prime Minister Boris Johnson.

Business morale in Germany, Europe’s largest economy surprised on the downside as IFO business climate index came in at 95.9 vs 97 expected. On Friday German retail sales data showed a disappointing 3.3% decline against a forecast for just a 0.5% drop. The overall GDP figures in the euro area did not fare any better coming in worse than anticipated at a measly 0.1%. And to top it all, inflation has also stayed way below the ECB target (below but close to 2%) at 1.1%.

On a positive note, Tesla continues to defy its critics as it beat expectations for both revenue and profit. Although the company still lost money overall in 2019, the electric cars maker promises to deliver over 500,000 vehicles this year, boosted by the recent partnership (a new mega-factory) with the Chinese government.