Coronavirus outbreak: now for the reckoning
As the authorities unveil sizeable fiscal and monetary responses to Covid-19, can the economy avoid a recession this year?
Markets Weekly
20 March 2020
4 minute read
Week ahead
The global impact of the spreading coronavirus pandemic remains the focus for markets as we approach the end of March. That said, key macro data and economic news are also on investors’ watch list.
In the eurozone and UK, March’s IHS Markit flash purchasing managers’ indices (PMI) will be published from the start of the week. The services sector is likely to exhibit signs of weakness as a result of drastic measures from the outbreak. Indeed, the dominant services sector in the US slipped into contractionary territory in February.
Furthermore, March flash data on Friday is likely to see further weakness as consumers avoid travel, retail and leisure activities due to the coronavirus outbreak. In China, whilst some stabilization is probable, especially as the number of cases outside of China now exceeds those within it, a sharp acceleration seems unlikely for now.
The Bank of England (BoE) will likely watch the UK PMI flash data and retail sales, the latter being out on Thursday, ahead of their 26 March meeting for any imminent signs of weakening in the economy. February retail sales data will provide the first official data insight into the services sector as Covid-19 entered the UK.
The BoE has followed the US Federal Reserve, cutting rates by 60 basis points to 0.1% over the past two weeks in what the Governor believes to be the effective lower bound. On top of that the BoE increased bond purchases to £645bn from £200bn.
In addition, investors will monitor the 2019 final Q4 gross domestic product reading for the US to assess the health of the economy before the Covid-19 outbreak.
Chart of the week
Diversification remains golden
Gold is known for its safe-haven characteristics. It is therefore a welcome portfolio diversifier given the extreme uncertainty seen in financial markets as a result of the Covid-19 outbreak.
Over the past few weeks, the corresponding downturn seen in the gold price with equities entering bear market territory is a worrying sign (see chart). The move appears to be the result of investors fleeing to cash for liquidity and selling all their investments, causing all asset classes, not just gold, to struggle. It is likely that as investors return, they will remain risk-averse, supporting the rare metal.
Furthermore, even with the fall, gold is outperforming the S&P 500 by 23.8% so far this year. With central banks providing significant monetary support and lower real rates, the opportunity cost of holding the precious metal continues to fall.
Previous editions of Markets Weekly
Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.
This document has been issued by the Investments division at Barclays Private Banking division and is not a product of the Barclays Research department. Any views expressed may differ from those of Barclays Research. All opinions and estimates included in this document constitute our judgment as of the date of the document and may be subject to change without notice. No representation is made as to the accuracy of the assumptions made within, or completeness of, any modeling, scenario analysis or back-testing.
Barclays is not responsible for information stated to be obtained or derived from third party sources or statistical services, and we do not guarantee the information’s accuracy which may be incomplete or condensed.
This document has been prepared for information purposes only and does not constitute a prospectus, an offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument, which may be discussed in it.
Any offer or entry into any transaction requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding transaction documents. Any past or simulated past performance including back-testing, modeling or scenario analysis contained herein does not predict and is no indication as to future performance. The value of any investment may also fluctuate as a result of market changes.
The value of any investment may also fluctuate as a result of market changes.
Neither Barclays, its affiliates nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation..
This document and the information contained herein may only be distributed and published in jurisdictions in which such distribution and publication is permitted. You may not distribute this document, in whole or part, without our prior, express written permission. Law or regulation in certain countries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves of and observe such restrictions.
The contents herein do not constitute investment, legal, tax, accounting or other advice. You should consider your own financial situation, objectives and needs, and conduct your own independent investigation and assessment of the contents of this document, including obtaining investment, legal, tax, accounting and such other advice as you consider necessary or appropriate, before making any investment or other decision.
THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.