Week ending 21st February 2020.

Apple this week warned that production and Chinese demand will miss its targets due to the coronavirus outbreak.

As Apple is far from alone in being exposed to Chinese manufacturing supply chains and its consumers, global equity markets are anticipating further stimulus injections to alleviate a global economic slowdown.

For example, while the minutes from the last Fed meeting showed that policymakers didn’t see the need for additional policy accommodation, as they thought the three US interest rate cuts during 2019 would be enough of a cushion for the US economy, they did say they were monitoring the risks from the coronavirus outbreak.

Additionally, it should be noted that the Fed meeting was held on 28 and 29 January 2020, which was only a week after the first coronavirus stories started to break – and obviously since then we have started to see the supply-chain distributions and a potential global slowdown, so we may well see the Fed act in the March or April meetings, if the virus threatens to significantly impact the US economic outlook.

This week’s main economic data releases came from the UK.

CPI inflation rose to 1.8% – its first increase since July 2019 – due to increases in the cost of petrol and oil.  The core CPI reading, which excludes volatile items such as food and energy, was 1.6%.

The UK unemployment rate was 3.8% as the UK economy added 180,000 jobs during Q4 2019, although wage growth including bonuses slowed to 2.9%, its slowest pace since August 2018.

Additionally, yesterday’s (20 February 2020) UK retail sales data added to signs that the UK economy is improving after the December general election, as sales excluding fuel rose 1.6% in January – the biggest increase since May 2018.

While this data may appear to potentially reduce the chances of a BoE interest rate cut (especially if we get a fiscal boost in next month’s budget), it should be noted that inflation remains below the BoE’s 2% target and the UK economy could quickly and easily slow due to uncertainty over EU trade talks – which currently look like they are going to be difficult, given recent verbal exchanges between the UK and the EU.

This coming week we have the second reading of Q4 US GDP; PCE (the Fed’s preferred inflation measure); Chinese PMI; Japanese retail sales; and Japanese industrial production.

We are also rapidly approaching the tax year end and so we would like to remind you that if you have not already taken advantage of your ISA allowance, now is the time to act.  The current limit is £20,000 and if you don’t use it by 5 April 2020, you will lose it. Contact us using the details found in your email to start the process.

Investment Management Team