Chinese virus concern spreads to global markets

21 January 2020

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

Market news

Fears over the spread of a dangerous virus in China has spread into financial markets this morning, contributing to the FTSE 100's decline of over 1% this morning. The coronavirus is proving more infectious than first thought, bringing comparisons to the Sars virus of 2003, which killed 800 people and had a significant impact on Chinese GDP growth. 

UK equities are also affected by this morning's labour market data, which showed that conditions strengthened by more than expected in the three months to November. Expectations that the Bank of England would lower interest rates this month are being recalibrated and sterling has risen higher on the news. Over 200k jobs were added during the period, while annual wage growth remained at 3.2%. 

The International Monetary Fund (IMF) has cut its global growth outlook from 3.4% to 3.3% this year and from 3.6% to 3.4% in 2021. Where it had previously said the global economy was in a synchronised slowdown, however, the IMF suspects it is stabilising, noting that risks such as the US-China trade deal and Brexit have receded, whilst monetary policy has become more supportive. 

The IMF's forecasts also suggest that the UK will be the fastest growing G7 economy in Europe, both this year and next. Britain is expected to grow 1.4% this year and 1.5% next year, assuming an “orderly” exit from the EU. The organisation added that the world economy was dependent on cheap credit and that whilst many central banks have eased monetary policy, the drying up of credit in India had contributed to the downgrade. 

A survey by Rightmove has suggested that UK house prices received a boost from Boris Johnson's emphatic election victory last month. Prices have risen 2.3% since December 12th, the largest recorded monthly move for this time of the year. 

Returning to China, monetary authorities in Beijing left interest rates unchanged yesterday despite calls to act before the Lunar New Year holiday. Meanwhile, a period of calm in Hong Kong was punctured when violence erupted at a rally over the weekend. 

Stock focus

Dixons Carphone enjoyed a better Christmas period than analysts had expected, turning in a 2% rise in like-for-like sales for the 10 weeks to January 4th. Chief executive Alex Baldock suggested that strategic initiatives, such as offering credit and redesigning shops, were working in the face of persisting challenges. It faces competition from online retailers and the slowing demand for consumer phone upgrades. 

EasyJet also gave a trading update this morning, saying that its revenue for the first half of its year will be better than previously expected. Boosted, amongst other factors, by a reduction in capacity amongst its peers, the airline saw passenger numbers increase by 2.8% in the final quarter of 2019. Revenues in the same period rose 9.9%. 

Octopus Energy has agreed to buy 70k British household customers from Engie, which is co-owned by the French state. Backed by Octopus Group, which has around £9bn assets under management, the energy arm has now acquired 5% of the UK market since launching in 2016. It is the sixth acquisition in two years, whilst it is also expanding internationally. 

Fevertree has warned that annual profits and revenues will be lower than expected after a surprisingly subdued Christmas. Sales in Britain fell by 1% in the final months of the year, for which it cited “short-term headwinds”. Demand growth in the US and Europe is more positive and group revenue is now forecast to be £260.5m. 

Finally, Sirius Minerals has urged investors to accept a £405m takeover by Anglo American, the FTSE 100 mining giant. Despite being worth £1.8bn less than two years ago, Sirius said that it was the “only feasible option” to save the Yorkshire mine and its processing site. 

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