Weekly Market Update - 10th February 2020
Updated: Feb 14
Chinese stimulus boosts global investor sentiment
Local and global equity markets rose this week after the Chinese central bank injected significant stimulus into the economy a lot earlier than most expected.
The Chinese equity market fell sharply earlier in the week on Coronavirus concerns before recovering some of the losses after the government injected significant stimulus into the economy and banned short selling.
Tesla’s share price rose more than 40% during the week, before falling more than 20% on concerns regarding a Chinese production slowdown due to Coronavirus. During the share price rise, the company’s market capitalisation became larger than the combined market capitalisation of General Motors, Ford, and Fiat Chrysler. In contrast, Tesla’s annual car production is achieved by those combined companies each week.
In local stock news, Coles has upgraded guidance after reporting an increase in sales during the 1st half of the year, with sales growth of 3.6% in the 2nd quarter and 2% over the half.
Downward pressure on oil prices continued this week on concerns regarding the impact of Coronavirus on economic activity
The RBA left the cash rate unchanged at 0.75% at their February meeting, preferring to wait and see how the rate cuts from last year progress through the economy, whilst reconfirming their intentions to provide more stimulus if required.
The RBA governor expects the summer’s bushfires to hurt December and March quarter economic growth figures, but is sticking to the bank’s 2020 growth outlook as they believe government grants and insurance payouts will assist with the rebuild. Time will tell. The full impact of the Coronavirus on the economy has yet to be felt.
Australian retail sales fell in December as expected, following November’s strong result which confirmed consumers had brought forward their Christmas spending. December sales were also adversely affected by the bushfires and associated smoke haze.
US factory activity rebounded in January, after contracting for 5 straight months, with a surge in new orders. A jobs report also showed a jump in private sector jobs in January, with the biggest monthly increase since May 2015.
US consumer spending rose steadily in December, increasing in line with expectations, whilst household inflation grew strongly in December with the biggest gain since April.
Eurozone economic growth has slowed again with the Italian economy now contracting, whilst core inflation slowed more than expected to 1.1%.
Eurozone retail sales have also fallen sharply in December, pushing the year on year growth down to a weak 1.3%.
The Chinese central bank is injecting $364bn of liquidity into the economy and has cut interest rates, with expectations rising of another cut later this month.
China’s manufacturing sector recorded a small dip in January whilst the country’s services sector activity ticked up.
US President Trump was acquitted by the Senate of impeachment, with a majority voting in his favour on both charges, which fell well short of the two-thirds majority needed to impeach him.
The US election engine got serious this week with the much anticipated Iowa primaries which have historically been a leading indicator as to who leads each party into the presidential election. President Trump is well ahead on the Republican side whilst the Democrats have Pete Buttigieg and Bernie Sanders tied at the top, with Joe Biden well behind at this stage. Still too early to tell for the Democrats.
The World Health Organisation director general has said that there was no reason for any measures that “unnecessarily interfere with international trade and travel”, which is in stark contrast to the significant measures already taken by governments and corporates globally. Total reported cases are now more than 28,000 with 567 reported deaths.
Authorities in China have extended the Lunar New Year holiday break well into February to try and keep people at home and reduce the spread of the virus. The reduction in Chinese economic activity and consumption will likely be felt around the world, something the world hasn’t seen for many decades.
UK Prime Minister Boris Johnson said there was no need for the UK to follow EU rules as part of a future trade deal and that his government wanted a free trade deal with the EU. The EU’s chief Brexit negotiator said they were ready to offer a sweet trade deal with zero tariffs, but it would be dependent on the UK aligning with EU standards
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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