Global equities react badly to accelerating spread of deadly coronavirus

28 January 2020

The Weekly Note is brought to you by the ALPHA: r² discretionary service team.

Market news

The FTSE 100 suffered its worst day since October yesterday, falling 2.3% as concern grew regarding the spread of the deadly coronavirus. US, Asian and continental European markets also suffered as cases of the virus, which originated in China, were confirmed in an increasing number of countries around the world. Officially, there have been over 100 fatalities and a few thousand confirmed infections. Fears that the incubation period is longer than expected, however, have led to predictions that as many as 100,000 people are already infected. 

Markets fear the consequences that the outbreak could have on the global economy, which has been slowing and relies on China for a significant portion of aggregate GDP growth. 56m people are already affected by a travel lockdown in China, which has also extended the Lunar New Year holiday. 

Wall Street was also under pressure from expectations that the Federal Reserve will not bring forward an expected rate cut at its meeting that starts today. Yesterday, the National Association for Business Economics' released data from a fourth-quarter survey that suggested the US labour market has peaked. 

With a US general election later this year, recent polls showed that Joe Biden and Bernie Sanders are leading the field of Democratic candidates, whilst new evidence was heard at President Trump's impeachment inquiry that suggested Trump tried to delay US military aid to Ukraine until its government agreed to investigate Biden. 

Meanwhile, the US Treasury Secretary has expressed hopes that a new trade deal with the UK can be reached by the end of the year. Britain is lined up to leave the EU at 11pm this Friday. Trade talks will not officially start until after the European governments agree a negotiating mandate next month, but this week Downing Street has rejected Brussels' proposal that the European Court of Justice can rule on any post-Brexit agreement. 

Stock focus

The rescue of Flybe by the UK government has been thrown in doubt, with it emerging that the stricken airline will ask officials for a £100m loan on top of the deferred £106m tax bill. The deal has also been complicated by Flybe's mortgaging of major assets last year to existing investors. Meanwhile, Ryanair's chief executive, Michael O'Leary, has threatened to sue the government if it rescued Flybe. 

Boris Johnson's government has approved the use of Huawei technology to develop the UK's 5G telecoms network, defying the wishes of Washington. The decision was unanimous and followed a meeting of the National Security Council, with caveats that Huawei's market share will be limited to 35% and its equipment will be excluded from the sensitive network “core”. 

ASOS enjoyed revenue growth of 20% in the final four months of 2019, with consistent performance across all of its divisions. The online retailer said that record Black Friday sales were a key contributor, following a theme that has seen Black Friday become more important to retailers' success over the festive period. Total sales hit £1.1bn. 

The pub group Marston's was also able to update investors on a “strong” Christmas. Despite a sluggish start to December, sales grew 4.5% during the holiday period. It added that cost management was largely on course, but that a 6.2% rise in the minimum wage, however, would likely cost between £2-3m. 

Finally, Sainsbury's has pledged to invest £1bn to reduce net greenhouse gas emissions to neutral over the next 20 years. It has also promised to halve its use of plastic packaging by 2025 and improve its healthy eating initiatives. Chief executive Mike Coupe added: “we must recognise that living well now also means living sustainably”.

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