Newsflow continues to be dominated by the spread of coronavirus

3 March 2020

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

Market news

Newsflow continues to be dominated by the spread of coronavirus and its potential impact on the global economy. Last week's torrid stock market performance saw the FTSE 100 and other leading indices enter correction territory. However, this week investors have taken some comfort from positive signals by central banks that they will do whatever it takes to shore up their economies in the face of a sharp slowdown. Shares this morning have continued their modest recovery from yesterday. 

Outgoing Bank of England Governor Mark Carney has warned of the coronavirus causing an economic shock “which could prove large, but which will ultimately be temporary”. He said the Bank would take “all necessary steps” to support the economy, households and businesses, hinting that the Bank of England is considering rate cuts to boost confidence. Meanwhile, the Australian central bank cut interest rates earlier this morning and Donald Trump has renewed his social media pressure on the US Federal Reserve to cut interest rates because of the virus. 

The oil price has risen again today on hope that governments and central banks will mitigate the effects of the outbreak. Brent Crude is up 2.6% today at $53.25 a barrel. 

Consumer prices in the eurozone grew more slowly in February. Latest figures suggest inflation in the eurozone fell to 1.2% last month, down from 1.4% in January. The slowdown was mainly due to a 0.3% year-on-year fall in energy prices. 

The UK's construction sector enjoyed a sharp upturn in February, its first expansion in nearly a year. The sector's purchasing managers' index (PMI) hit 52.6 in February, a sharp increase from 48.4 in January. 

Stock focus

British Airways owner IAG has warned that bookings in 2020 will be hit by the effects of coronavirus. Willie Walsh said that as well as all China flights being suspended, there had been “a significant fall-off in demand in Italy”. Airline shares have fallen sharply amid investor concerns about the potential economic effects of the virus. EasyJet is also cancelling some flights and is looking into making cost cuts. 

Aerospace engineering firm Rolls-Royce Holdings has reported a pre-tax loss of £891m for the 12 months ended 31st December, as spiralling costs in trying to solve durability problems with its Trent 1000 engine eclipsed profit gained from record engine deliveries. The company had to write off £1.4bn in its full-year results, which offset a 25% rise in operating profit. 

Insurance company Direct Line has reported a 12.2% drop in full-year profits to £509.7m. The company said that February's storms are set to lead to claims of about £35m, which is more than half of its expected annual weather cost. Direct Line also announced the launch of a share buyback of up to £150m. 

February's storms have also had a significant effect on the performance of food retailer Greggs. Whilst the company announced for 2019 a 13.5% increase in total sales to £1.2bn, recent trading has been hit by the recent inclement weather, leading to a “significant slowdown” in sales growth. 

Consumer goods giant Reckitt Benckiser has reported a £2.1bn loss for 2019, compared to a £2.7bn profit for the previous year. Part of the company's woes relate to a £5bn write-down it had to take on a 2017 acquisition of baby formula maker Mead Johnson. The company said it was investing £2bn into its business over the next three years as part of wider efforts to restructure the firm.

Subscribe to the Weekly Note!

Subscribe today and email alpha@wcgplc.co.uk to register your interest, and receive the full Weekly Note in your inbox every Tuesday.