With the start of the Lunar New Year holiday, which usually sees millions of Chinese travel across the country, the Chinese government enforced a lockdown and imposed travel restrictions across Hubei province, including the capital Wuhan, the origin of the virus.
With a death toll of 26 so far, the Chinese and Hong Kong equity markets finished the week lower by 3.2% and 3.8% as of 12pm London time. Abroad, some European luxury good stocks, heavily reliant on Chinese sales, dropped, with Burberry and LVMH each down more than 2%. That said, stocks globally made a recovery at the end of the week when the World Health Organization said it was “too early” to declare a global emergency. Overall as of 12pm London time, the European market just managed to finish in positive territory up 0.1%. Elsewhere, the UK ended the week lower by 0.58%, and the US market only fell by 0.12%.
10-year US Treasury yields fall below 1.75%
Brief concerns over the coronavirus also drove demand for safe haven government bonds. Yields, which move inversely to their price, dropped by 9 basis points for the 10-year US Treasury to finish trading at 1.74%. Equivalent 10-year UK Gilt and German bunds also rallied with the bund yield falling by 8 basis points to -0.29% whilst the 10-year gilt yield fell by 4 basis points to 0.59%.
Mixed economic data releases in Europe
In economic news, Eurozone business activity remained weak, as a decline in the services sector offset an improvement in manufacturing. Purchasing Managers Indices (PMIs) for manufacturing still came in below 50, indicating a contraction in activity. However, due to new orders stabilising, the reading of 47.8 is a 5 month high and an improvement on the last reading of 46.3 last month. There was evidence though that the bloc’s dominant services industry is weakening as its PMI dropped to 52.2 from 52.8, despite forecasts for no change.
Elsewhere, in the UK, data surprised on the upside with a better than expected private sector composite PMI of 52.4 up from 49.3 in December, driven by growth in the services sector. The labour market also remains resilient as 208,000 jobs were added to the economy in the three months to November, nearly double than expected. The robust data has eased expectations of an interest rate cut by the Bank of England at its meeting next week.
Australian equities extend their run
Australian equities were one of the few bright spots globally, improving for a 3rd week in a row, up 0.37%. Advances in the healthcare sector, banks and supermarkets outweighed declines in the big miners. Overnight the fall in iron ore price caused BHP to slip 1.2% and Rio Tinto to fall 2.1%. In other news unemployment fell unexpectedly to a nine-month low of 5.1% scuppering near-term expectations for a rate cut from the Reserve Bank of Australia.
Oil prices fall on fears of oversupply
Brent crude oil finished the week lower by 4.67% to $61.82 per barrel as of 12pm London time. Despite supply disruptions in Libya due to a military blockade earlier on Monday, prices fell after the International Energy Agency announced it still expects the market to have a surplus of 1 million barrels per day in the first half of this year. Supply is likely to continue to rise, with U.S. crude production in large shale deposits expected to rise to record highs in February. Matters were not helped by expectations of weaker oil demand likely brought about by a drop in jet fuel demand as the coronavirus outbreak in China discourages travel for the Lunar New Year.