Market Update

Concerns regarding the economic impact of the coronavirus led to a downturn in global equity markets this week. China's equity market remained closed throughout the week, as the Lunar New Year holiday was extended due to the outbreak. The potential consequences for Monday (3 February 2020) when trading resumes could be daunting.
While it's understandable that the coronavirus dominates headlines and creates market unease, it's crucial not to react impulsively to every development. A recent incident involving Carnival, a cruise ship operator, serves as a notable example. The company's stock plummeted by over 11% when a suspected case of coronavirus was reported onboard. However, when it turned out to be a regular flu case, the shares swiftly rebounded.
This outbreak, tragic as it is, is likely to be a passing concern for equity markets, similar to past instances like SARS, swine flu, MERS, Zika virus, and Ebola. Therefore, maintaining a long-term perspective and resisting knee-jerk reactions is vital. History suggests that once we gain clarity on the virus's spread and fears diminish, there's a reasonable chance of a rapid recovery in equity markets, resembling a V-shaped trajectory.
In the UK, Mark Carney, the Bank of England (BoE) governor, recently presented his final monetary policy decision and quarterly briefing before his upcoming replacement, Andrew Bailey, takes over in March 2020. Despite Carney's prior indications of a potential interest rate cut to stimulate the economy, the BoE left interest rates unchanged. Only two BoE policymakers voted for a rate cut, even though the BoE revised down its economic growth forecasts for the UK. The new projections anticipate a 0.75% growth in 2020 and 1.5% in 2021, lower than earlier estimates.
In the US, the Federal Reserve, as anticipated, maintained unchanged interest rates. However, during the press conference, Fed Chair Jerome Powell emphasized the coronavirus outbreak as a risk to the economic outlook. He also stressed the importance of reaching the 2% inflation target, implying a lowered threshold for potential US interest rate cuts.
Additionally, concerns about reduced demand due to the coronavirus led to further declines in commodity prices. For instance, the price of a barrel of Brent crude fell by 6% despite ongoing geopolitical tensions, including potential disruptions in Libya's oil production and attacks in Iraq's Green Zone.
Looking ahead, the main economic data release for the upcoming week will be US employment data, including non-farm payrolls, the unemployment rate, participation rate, and average earnings, set for Friday (7 February 2020).
As the tax year end approaches, we urge you to consider utilizing your ISA allowance, which currently stands at £20,000. Failing to utilize this allowance by 5 April 2020 will result in its forfeiture. Feel free to contact us using the details provided in your email to initiate the process promptly.