LAST WEEK – KEY TAKEAWAYS
CORONAVIRUS: SHARES FALL AS INVESTORS SWITCH TO BONDS
- Concerns about the coronavirus continued to weigh on the markets, as global shares experienced their worst week since the 2008 financial crisis;
- Meanwhile, the yield (income paid) on long-term US government bonds fell below the yield on their short-term equivalents- an effect known as the inversion of the yield curve which has in the past preceded an economic slowdown.
- Omnis view: Investors have switched their money out of shares and into what are traditionally considered ‘safe haven’ assets such as government bonds as the virus continues to spread. This ‘flight to safety’ has pushed down yields on long-term bonds (as yields move in the opposite direction to price). However, we believe a recession is unlikely because global economies are still fundamentally strong and central banks will act to support activity.
UK: PM PREPARED TO WALK AWAY FROM BREXIT TALKS
- The pound weakened against the US dollar after the Prime Minister claimed he would be prepared to abandon negotiations with the EU if the two sides have not made sufficient progress on a free trade agreement by June.
- Omnis view: Boris Johnson will feel the Conservative party’s comprehensive victory in the general election in December gives him a mandate to at least threaten to walk away without a deal. It remains to be seen whether this tactic will do anything other than aggravate Europe.
EUROPE: PROSPECTS OF AN INITIAL TRADE DEAL WITH US IMPROVE
- Phil Hogan, the EU’s new trade commissioner, said he was optimistic about agreeing a ‘mini’ trade deal with the US after the US delayed tariffs- taxes on goods imported from abroad- in response to the EU’s support for its aircraft industry.
- Omnis view: US President Donald Trump had hinted that he would turn his attention to what he perceives as a trade imbalance between the US and the EU after concluding the first phase of an agreement with China, so the prospect of this mini deal means the global economy has one less risk to worry about as it deals with the outbreak of the coronavirus.
LOOKING AHEAD – TALKING POINTS
- Tuesday- EU unemployment rate in January and inflation rate in February;
- Friday- US imports, exports and balance of trade in January; US non-farm payroll report (job creation) in February;
- Saturday- Chinese imports, exports and balance of trade in February.
- Negotiations between the UK and the EU over a free trade deal start today.