Key Points This Week

Corona-virus Spread Intensifies

The corona-virus outbreak, which began in China around a fortnight ago, has continued to spread this week with cases now confirmed in the US and on mainland Europe. So far, nearly 200 people have died from the virus which has infected around 8000 people (confirmed). The World Health Organisation has now declared the outbreak a global health emergency amidst fear that the virus will continue to spread. Risk markets have been broadly lower over the week as a result of rising uncertainty.

Fed Keeps Rates On Hold

The Fed kept rates on hold at the January FOMC with a policy statement which was roughly unaltered from last time around. The Fed still judges current monetary policy to be appropriate though said that it will continue to monitor incoming data and ongoing developments. In the post-meeting press conference, Powell struck a cautious note and acknowledged the threat from the Corona-virus outbreak which he said poses a high level of risk both domestically and globally.

BOE Keeps Rates On Hold

The BOE also kept rates on hold this week. However, the Pound was firmly bid in response to the tone of the meeting which was far less dovish than many had been expecting. In his last meeting as BOE chair, Powell noted that the UK recovery appears to be on track and sounded confident about the near term outlook for the economy. These comments were in stark contrast to those made just a few weeks ago when Carne warned that easing might be needed as the anticipated economic rebound was not yet showing.

Britain Leaves EU

On Friday, the UK officially left the EU following the successful approval of PM Johnson’s Brexit bill in parliament earlier in the month. The UK will now enter into an 11-month transition phase with the EU, during which time the two sides will focus on negotiating a trade deal to lock in the terms of future trade once the UK leaves the single market at the end of the year.

Key Events Next Week

UK & US Manufacturing PMIs

The next round of PMIs are due on both sides of the Atlantic next week and close attention will be on the manufacturing readings. With the US-Sino trade agreement now signed, traders will be eager to see if there has been any uptick in activity over the last month. With manufacturing sectors on both sides of the pond having been in negative territory, a move above the 50 level would be firmly bullish.

RBA Rate Decision

The RBA meets next week for its February monetary policy decision. Last time around, the RBA warned that it would be considering all necessary options at the February meeting. In light of the bushfires there over the last two months and now with the outbreak of corona-virus, the market is widely expecting that the RBA will look to backstop the economy by easing.

US Labour Reports

The January NFP, Unemployment rate and wage growth reports are each due next Friday and the market will be eager to see if there has been any pickup, particularly in wage growth which has been stalling recently. While unemployment remains at 50-year lows, wage growth has fallen back recently.

Keep An Eye On

Corona-Virus Updates

The ongoing viral outbreak poses two-way risks for markets. While a continued spread and ongoing increase in the death toll and number of confirmed cases threatens to push risk assets lower, risk assets could see a sudden move higher if there are any breakthroughs regarding containing the virus. For reference, SARS took 3 – 4 months to contain so it is likely a little early to be expecting a resolution to this situation.

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