Global markets enjoyed a strong rebound last week and continued to hit highs at the beginning of the week as fears surrounding the global impact of the coronavirus subsided. However, concerns over the impact of the virus have swept back through stock markets after China reported a jump in cases. This highlights the nature of the fragile risk-on sentiment currently in markets which rests on an assumption that China’s COVID-19 outbreak – the new name given to the coronavirus this week by the World Health Organisation – will soon be contained with the ensuing economic shock being temporary and offset by a tidal wave of stimulus. The death toll has breached the 1’000 mark with the majority of fatalities in China.
The absence of green shoots at the end of 2019 for Euro Zone manufacturing was confirmed as Germany’s industrial production fell 6.8% YoY in December, the largest decline since November 2009. In France, industrial production contracted 3% for the year to December, the largest since 2014. The data pushed the euro down to its weakest level since October 2019, with further pressure from the tone of UK/EU trade talks.
The race to succeed Angela Merkel as German leader was thrown wide open as Annegret Kramp-Karrenbauer (AKK), the woman seen as heir apparent, dropped out of running for chancellor in the next election and is to stand down as leader of the Christian Democrat Union. At this stage, the top candidates that will probably be battling it out for the succession include Armin Laschet (a Merkel loyalist and centrist candidate), Jens Spahn (health minister), Friedrich Merz (previously defeated by AKK), and Markus Soder.
Meanwhile, in the UK, data showed the British economy stagnated in the final quarter of 2019 despite an uptick in December as high political uncertainty weighed on business investment, consumer spending and manufacturing. There was zero growth in GDP in the final quarter compared with the previous three months.
Adding to this weak data, the UK chancellor, Sajid Javid, has resigned following a post-Brexit cabinet reshuffle by PM Boris Johnson. Mr Javid was due to deliver his first Budget in four weeks’ time. He will be replaced by Rishi Sunak who was a junior housing minister seven months ago.
Across the pond, and the fight for the Democrat presidential candidate has continued in the New Hampshire primary. Bernie Sanders secured a narrow victory fending off a strong challenge from moderate candidate Pete Buttigieg.
In the US, 70% of the S&P 500 companies have reported their Q4 results, with 75% beating analyst estimates. This translates into a +2% YoY earnings growth in Q4. In Europe, we are about half-way through the earnings season, with 64% of Stoxx 600 companies beating analysts estimates. The YoY earnings growth is flat so far in Europe but this is weighed down mainly by Commodities and Industrials stocks.
February 14, 2020