Feb 11, 2020

Key points

• The conflict between the US and Iran caused some market volatility but proved to be short lived.
• Activity indicators were generally stronger in January. US manufacturing, which had been an area of weakness, posted a strong print in early February, well above expectations.
• The US earnings season was very strong. At the time of writing, 320 S&P 500 companies have reported with 238 (74%) of those companies beating consensus earnings expectations.
• The outbreak of Novel Coronavirus (2019-nCov), a relatively less deadly but more contagious coronavirus than SARS, will have an impact on global economic activity due to cities being in lockdown and supply chains being disrupted.
• Interest rates and commodity prices have dropped substantially in response to the coronavirus outbreak. Equities, however, appear to have been supported by strong earnings and greater emphasis on the prior uptick in economic activity.

Key developments

Markets began 2020 on a bullish note as fears of an escalation in trade tensions between the US and China, and of a disorderly Brexit, were assuaged late in 2019. However, investor worry switched from trade wars to real wars with the US assassination of Iranian General, Qassem Soleimani, causing a military response from Iran. Fortunately, this conflict, which caused some short-term volatility, met a swift impasse.

Further volatility ensued later in January following the outbreak of Novel Coronavirus (2019-nCov). This triggered substantial shifts in asset classes. Those sharpest hit were Chinese A-shares, which resumed trading after an extended Chinese New Year break, which fell -7.9% on the first day of trading post the outbreak. China-related, commodity and tourism exposed stocks were also hit hard. Some healthcare stocks benefitted from expected higher healthcare spending. Stocks have recovered strongly in early February.

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