OCM Commentaries

Market Commentary 6th February 2020

By February 6, 2020 February 12th, 2020 No Comments

Data, Trade Headlines Lift Markets Amid Coronavirus Gloom

Despite the ongoing concerns in financial markets regarding the potential economic impact of the recent coronavirus outbreak in China, equity markets have rallied this week on positive data and trade headlines, as well as indications that progress is being made towards containment of the deadly virus. As a result, main indices have regained some ground from last week’s losses (with the exception of Asian markets, as can be expected). As we look ahead and consider our outlook, despite the immediate virus fears, we remain optimistic given improving economic fundamentals and opportunities arising in markets following the recent drop back in valuations. This week, market movements have been dominated by the following headlines:

Coronavirus Outbreak

To date, there have been around 28,000 confirmed cases of the virus in over 20 countries and a current death toll of 565.  Deaths and cases are likely to rise until the outbreak is contained, however data suggests that the rate of infection is slowing. Authorities are attempting to contain the outbreak by suspending public transport and restricting movement in and out of cities across China.  Attempts to restrict the spread of the virus have now become a global effort, with governments across the world tightening international travel and border crossings with China.

The recent outbreak continued to weigh on investor sentiment over the week, however many global equity markets have rebounded from their lows, in part thanks to the announcement from China to cut tariffs on some $75 billion worth of US goods, starting 14thFebruary.  Fears that the outbreak could disrupt travel and commerce amid already slow economic growth sent a chill through global risk markets, hitting Asian stocks particularly hard, depressing commodity prices and sending investors into safe havens like US Treasuries.  In terms of the true economic impact from the coronavirus we anticipate a drop in GDP growth in the first quarter of 2020, but expect this to be offset by an acceleration in growth in the following quarters as there becomes a need to satisfy the demand that built up during the time the economy was effectively on hold – a situation similar to that caused by the SARS virus in 2003.

What’s Next With Brexit?

The United Kingdom formally left the European Union on Friday 31stJanuary 2020, which is being termed ‘Brexit day’. Brexit day marks the beginning of a transition period until the end of the year, during which the UK will continue to apply and be bound by all EU laws but concede its seat at the EU’s decision-making tables. For businesses and workers, this means minimal change, especially with continued free movement of goods and people.  Within the coming eleven months, the UK is also to negotiate its future relationship with the EU. While the stated objective of the British government is to roll out a comprehensive and wide-ranging free trade agreement, policymakers and trade experts argue that 11 months is too short a timeframe for such a deal.

As such there are several possible ways how Brexit could play out. The first is an extension to the transition period. The British government has ruled this out, even legislating against it. The legislation could, in theory, be amended to allow for an extension, but it is a clear statement of the government’s intent. The second option would be a “cliff-edge” Brexit at the end of this year, where the UK and the EU part ways without an agreement, a so-called ‘no-deal Brexit’, and would resort to trade under the rules of the World Trade Organization. This would be disruptive for both British and European businesses and is likely to be avoided. The final option—that of a ‘basic’ trade deal—seems the most likely outcome at the moment. Such a deal could cover tariff-free goods trade, an agreement on direct investment and provisions ensuring a level playing field, that seek to prevent either side giving their businesses undue competitive advantage. More substantive agreements on services trade or cross-border data flows are likely to take more time, calling for a further ‘implementation period’.

The US Economy Grows Modestly

Recent data releases suggest that the US economy grew at a modest pace in the fourth quarter, at a rate nearly identical to growth in the second and third quarters. For all of 2019, GDP grew 2.3%, down from 2.9% in 2018. The difference was largely due to a sharp slowdown in business investment owing to a slowdown in global trade and trade policy uncertainty. On trade, exports of goods declined in the fourth quarter while exports of services rose at a strong pace. Imports of goods fell sharply, which boosted GDP growth. The question now is whether exports are likely to significantly accelerate as a result of the new US China trade deal. Recent survey data suggests that the US has recently seen a rebound in both manufacturing and non-manufacturing sentiment as positive momentum carries through into 2020.

For further information on our Outlook given current market conditions, please see the attached Market Update document.


Key Events We Are Watching This Week:

  • Friday: US Non-Farms Payroll Jobs data, Chinese trade data for Jan
  • Tuesday: UK GDP data for Q4

For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.

Model Portfolios & Indices

Global equity markets experienced high levels of volatility over the week, with concerns over the coronavirus outbreak in China weighing on investor sentiment, before markets rallied towards the end of the week on trade headlines and indications that the virus is being effectively contained. The OBI portfolios remain defensively positioned in comparison to normal market conditions, and we continue to closely monitor the data, looking for opportunities as they arise. The portfolios gained over the week as the defensive element of the portfolios performed well, before the equity content rallied towards the end of the week, meaning that the portfolios outperformed the more equity heavy benchmarks.

Please note that the YTD data in the table below reflects performance from the start of the new year.


Important Information


The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the day’s movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested.


Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.


This Day in History


On this day in 1918, following over 50 years of campaigning, the Representation of the People Act was passed, granting women aged 30 and over the right to vote in parliamentary elections. This was still not on an equal basis to men, however marked an important milestone towards achieving voting equality 10 years later.


Have a great week,


Jason & Gina