Market Spice: Week of February 17th, 2020
By Delany Higgins
- Chinese Communist Party leaders focused on business disruptions, noting that priority would be given to businesses with a high degree of integration into international supply chains. CCP officials spoke optimistically about the resumption of business in major export areas such as Guangdong and Jiangsu.
- South Korea faced the largest breakout of COVID-19 outside of China, and the Kospi 180721 fell over 1%. Hong Kong’s Hang Seng, Tokyo’s Nikkei, Taiwan’s Y999, and Indonesia’s JSX Composite all fell as well, though the Shanghai Composite rose slightly. The South Korean breakout appears to be concentrated within a religious sect in the city of Daegu.
- Japan’s economy shrank at an annual rate of 6.3% in the fourth quarter of 2019, likely as a result of an increase in the consumption tax.
- On Thursday, the People’s Bank of China cut the one-year loan-prime rate in efforts to increase small and medium enterprises’ resilience to the virus outbreak.
- The service sector purchasing managers index for Europe rose to a six-month high in February. In manufacturing, although activity still contracted, the PMI exceeded projections, marking an improvement from previous months.
- Facing an approximately €70 billion funding gap from the combination of Brexit with an increasingly ambitious legislative agenda, the EU found itself at an impasse over funding arrangements for the next seven years. Net-payers such as the Netherlands, Austria, Sweden, Denmark, and Germany resisted suggestions that they increase their funding burden, while representatives from net-takers such as Portugal and Romania protested their inability to accept cuts.
- Breakouts of COVID-19 in South Korea, Egypt, and Iran, drove investors to traditional safe-havens. Yields on 30-year U.S. Treasuries reached an all-time low below 1.9% on Friday, and gold hit its highest price in seven years.
- U.S. service sector activity slowed, with the service sector PMI dropping to 49.4 for the first time in six years. This marked a contraction for the first time since 2016. Manufacturing stalled as well. Analysts attributed the slowdown to the decreased demand and supply-chain disruptions caused by COVID-19.
- Despite the S&P 500 and Nasdaq reaching record highs mid-week, on Friday, the U.S. large-cap indexes suffered. The S&P was down 1%, the Dow down 1.4%, and the Nasdaq down 1.6%. Concerns about supply chains dependant on Asia hit tech stocks particularly hard.
- Exemplifying the supply-chain problems caused by COVID-19, on Monday, Apple announced that it expected to miss its March revenue targets due the slowness of factories in China to resume regular operations, and decreased Chinese demand.
- The IMF announced a new policy framework for emerging markets to help countries deal with external shocks, and the limitations of flexible exchange rates to absorb global shifts.
Cover Image Source: Kim Jun-beom/Yonhap via AP)