Coronavirus, an economic health check?

Wed 11 Mar 2020

Monthly Market Update

Read our full Monthy Market Update March 2020

The month in review: COVID-19 disruption supresses risk appetite

February was a tale of two distinct periods. Initially, with the Federal Reserve and the ECB printing money and an economic slowdown more probable than an imminent recession, global stocks continued to climb, with major developed market equity indices setting new highs. However the number of COVID-19 cases in China continued to climb, while countries across the globe such as Italy, Iran, South Korea saw a rapid spike in their case count too. With workers away from their offices and factories, and individuals deferring travel and entertainment expenditures, this virus has the potential to cause a simultaneous supply and demand shock, with China, the world’s growth engine, the epicentre. Equity markets gave up their 2020 gains, with US equities observing their quickest 10% correction since the Great Depression. UK stocks also saw a correction in late February which erased year-to-date gains. Globally, more defensive stocks were the best performers, while Energy stocks failed to keep up with the wider market as Oil prices fell. Capital fled into the fixed income markets, with the 10Y Gilt yield closing at 0.44% and the US 10Y Treasury yield falling below 1% for the first time on the back of the emergency 50bps rate cut by the Federal Reserve. Markets are pricing in another 50bps rate cut at the Fed’s March meeting.

In the political sphere, the UK continued to signal its desire to “diverge” from EU standards, however, the EU in turn expect a “level playing field” on issues such as labour laws and state subsidies. These differences, paired with more idiosyncratic issues such fishing waters access, will cause friction as negotiations unfold; if the Withdrawal Act developments are a precedent to go by, uncertainty will likely remain until the final hour. In early March markets were briefly cheered by the strong performance of former Vice President Joe Biden in the ‘Super Tuesday’ primary elections. Biden is considered far more ‘market friendly’ than the other frontrunner for the Democratic Party presidential nominee, Bernie Sanders.