Assessing the coronavirus impact

Garry White looks at the market-moving events that have shaped equity markets this week (2 – 6 March 2020).

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  1. Garry White

It was a torrid week on global stock markets, as bargain hunters moved only to be thwarted by further market falls. Companies are withdrawing earnings guidance and the economic impact of the spread of the coronavirus remains unclear. This implies that downgrading of earnings forecast by analysts could continue for some time. As a result, US banks, transport stocks and small-caps entered a bear market. Travel companies, hotels and airlines continue to bear the brunt of the negativity.

The Federal Reserve cut interest rates – much to the market’s surprise – as it is unclear why lower borrowing, in general, will help the situation. Despite the Chinese government’s mistake at the start of the outbreak, when it was reluctant to reveal there was a problem, actions of the People’s Bank of China (PBoC) have been more positive. The PBoC drew up a list of industries that needed support and encouraged banks to lend to these companies at discounted rates.

The FTSE 100 was down 1.6% by mid-session on Friday and the FTSE 250 had shed 3.8%.

Coronavirus (Covid-19)

The director-general of the World Health Organisation warned governments that the continued international spread of the novel coronavirus was "not a drill" and will require significant action if public health authorities are to contain the deadly outbreak. The global number of people infected by the virus is close to 100,000 as self-sustaining clusters continue to expand in South Korea, Japan, parts of Europe, Iran and the US.

Finance ministers from the G7 group of nations have said they will use "all appropriate policy tools" to tackle the economic impact of coronavirus, after taking part in a conference call. The group of major economies said in a joint statement they were monitoring the outbreak and ready to deploy "fiscal measures".

Following on from the statement, the US central bank cut interest rates by half a percentage point to a target range of 1% to 1.25%, a move that surprised the market. Donald Trump had been putting pressure on the Fed earlier in the days after Australia's central bank cut interest rates to fresh record lows. The Bank of Canada also made a similar move. Futures contracts are now pricing in an interest rate cut by the Bank of England’s next meeting on 26 March to a record low of 0.5%.

Outgoing Bank of England governor Mark Carney warned that Covid-19 could produce a "large" but "ultimately temporary" shock to the economy that could last about six months. He said, "we will have disruption not destruction".

Up to a fifth of the workforce may be off sick during the peak of a coronavirus epidemic in the UK, the government said in its planning document, aimed at tackling the spread of the infection. You can read the government’s plan here.

The Organisation for Economic Cooperation and Development (OECD) warned that the global economy could grow at its slowest rate since 2009 this year because of the outbreak. The think tank forecast growth of just 2.4% in 2020, down from 2.9% in November, but it said a longer "more intensive" outbreak could tip many countries into recession.

India, the world’s main supplier of generic drugs, restricted the export of 26 pharmaceutical ingredients and the medicines made from them, including paracetamol. This is due to the manufacturers’ reliance on China for almost 70% of the active pharmaceutical ingredients.

US manufacturing activity slowed in February as new orders contracted, reflecting worries about supply chain disruptions related to Covid-19.

The Tokyo 2020 Olympics could be postponed from the summer until later in the year amid concerns around the outbreak, Japan's Olympic minister Seiko Hashimoto said. The Games are scheduled to begin on 24 July.

The outbreak is also hitting credit markets. Micro Focus delayed a $1.4bn debt sale due to market uncertainty caused by the coronavirus. The troubled tech group had reportedly been working on plans for the $1.4bn loan — which had initially supported the acquisition of Hewlett-Packard’s enterprise software division — for two weeks. However, debt prices and borrowing costs have risen due to the now uncertain outlook.

UK regional carrier Flybe became the first big casualty of the slump in travel demand due to the crisis. The airline collapsed after months of talks with the government failed to secure a crucial £100m loan and the coronavirus outbreak slashed demand.

The International Air Transport Association (IATA) forecast that the hit to passenger airlines in lost revenue from the crisis could be anywhere between $63bn and $113bn this year, depending on the virus's progression. On February 20, it had forecast a hit of $29bn.

At a senior airline industry summit, European airlines warned the worst is still to come in terms of economic damage to the industry. Air France-KLM chief executive Ben Smith called for a relaxation of airport regulations under which airlines can lose lucrative landing and take-off slots if they cancel flights for a prolonged period. Airlines also want a “common set of health requirements for travel to and from the affected regions”, he said. Norwegian Air also scrapped its profit guidance for the year.

As the coronavirus outbreak continues to spread across Washington state, Amazon, Microsoft and Facebook advised their Seattle-area employees to work from home for the next few weeks.

Visa warned that cardholders’ spending overseas has slowed sharply, especially for travel-related purchases, and that this quarter’s revenue growth will be about 2.5 to 3.5 percentage points lower than the outlook it shared on 30 January. Rival Mastercard issued a similar warning last week.

Auto parts supplier Continental warned of a difficult year ahead for the global car industry, due to the coronavirus outbreak. It said the passenger car market would decline by up to 5% in 2020, marking the third successive annual contraction and the worst since the financial crisis.

Jaguar Land Rover’s profits will be hit by the coronavirus outbreak, after an 85% fall in sales in China, its Indian owner Tata Motors said.

Ride-hailing app Uber said in a regulatory filing that the coronavirus posed a material risk to its business. Uber noted the spread could disrupt operations outside the US.

Recruiter Robert Walters issued a virus-related profit warning. Management said the global recruitment market "remains unpredictable at present with the coronavirus outbreak, which is likely to negatively impact full-year profit expectations, adding a further layer of uncertainty".

The release of the latest James Bond film, No Time to Die, was delayed by the coronavirus outbreak, but Cineworld insisted that it is not being squeezed too hard. The cinema operator said it had not seen “any material impact on our movie theatre admissions due to Covid-19”.

But not all companies in the US have lost out. Shares in Campbell Soup Company saw their best performance in two decades, as shoppers stocked up on tinned goods. Convenience store operator Kroger was the second-best performer since the market peaked on February 19. Costco also said it had seen strong sales as customers stocked up to prepare for the virus. Clorox, maker of disinfectant wipes was also a beneficiary, as was video game maker Electronic Arts.


Britain’s chief Brexit negotiator, David Frost, met his counterpart from the European Union, Michel Barnier, as talks began to strike a trade deal. At the end of the first few days of discussions, Michel Barnier, the EU’s chief negotiator, said there remained "serious" differences between the UK and EU after the first round of trade talks. He said there were disagreements over competition rules, police co-operation, and how a deal would be enforced. Mr Barnier also dismissed UK proposals on fishing as "impractical".

The government has calculated that a post-Brexit trade deal with the US would boost the British economy by 0.16% over the next 15 years. The figure is contained in a 180-page document laying out Boris Johnson’s official negotiating position, with talks expected to begin later this month. The document said food standards will be maintained and stresses that the NHS is "not on the table". These two issues had been regarded as contentious by some, but the US trade representative Robert Lighthizer dismissed these fears on Monday. “I don’t think either of those are going to be what sinks us,” Mr Lighthizer said. You can see the UK government document by clicking here.

The UK's construction sector saw a sharp upturn in February, according to the closely-watched purchasing managers' index (PMI). The survey by IHS Markit/CIPS expanded for the first time in nearly a year, with the PMI index hitting 52.6 in February, up from 48.4 in January. A figure above 50 indicates an expansion in the sector. The news prompted a rally in shares of house builders such as Persimmon, Taylor Wimpey and Barratt Developments, which bounced from falls in the recent sell-off.


Eurozone inflation fell in line with market expectations last month, as unemployment remained unchanged, official figures showed. Headline inflation eased to 1.2% in February from 1.4% the month before, figures from Eurostat showed.

South Africa was officially in a recession in the latter half of 2019. Its economy shrank by 1.4% in the fourth quarter of 2019, adding to a contraction of 0.8% in the third quarter.


The number of potential Democrat Party candidates to take on Donald Trump in the November US presidential election reduced at a faster rate than expected. Following the withdrawal of Michael Bloomberg, it now looks certain that the leading moderate Democrat for the nomination will be Joe Biden. Elizabeth Warren also withdrew from the race.  Moderate Joe Biden and the socialist Bernie Sanders will fight it out in the coming months. The Democratic Convention is held in mid-July.

A ceasefire was enacted in Syria's Idlib after Russia and Turkey struck a deal. Vladimir Putin and Recep Tayyip Erdogan held talks in Moscow aimed at ending hostilities in the country's last rebel stronghold.

Fixed income

The global equity sell-off prompted a powerful rally in government bonds, as investors sought safety. Thirty-year US Treasury yields slid below 1.5pc for the first time and the ten-year hit a record low of just over 0.8%.


Apple will pay up to half a billion dollars to settle a class action lawsuit accusing it of slowing down older iPhone models to try and force users to buy new models. The proposed settlement requires Apple to pay the owners of certain iPhone models $25 per affected device, totalling a minimum of $310m and a maximum of $500m, according to documents released by a California court.

Garry White argues that Europe is a technology loser, as China and the US clash and boost innovation in their own countries. Discover why here.


In another example of the digital divide forming between the US and China, automaker Geely said on Tuesday it was investing about $330m in a new satellite manufacturing plant, where it plans to build low-orbit satellites to provide more accurate data for self-driving cars. This is a similar system to Starlink, currently being developed by Elon Musk’s SpaceX.

SpaceX also announced it has signed a deal with start-up Axiom Space, which plans to take tourists, private researchers, astronauts from foreign countries and other individuals outside of NASA's astronaut corps to the International Space Station.


Brent crude futures fell 4.7% over the week by mid-session on Friday, to trade at just over $48 a barrel, as coronavirus concern hit markets. The market awaits a decision on Opec cuts.

Chevron Corp said it would keep its spending in check and return up to $80 billion to shareholders over the next five years, with Chief Executive Mike Wirth arguing that his company is the oil major best able to produce oil and generate profits at the lowest cost.


Sirius Minerals, the company building a £4bn fertilizer mine under the North York Moors, will be sold to Anglo American for £405m after a rebellion by irate small investors against a deal failed. Following a fractious shareholder meeting, investors ultimately voted narrowly in favour of a sale to the mining giant.


The latest grocery market share figures from market researcher Kantar Worldpanel showed year-on-year supermarket sales grew by the fastest rate since November last year, at 0.7% in the most recent 12-week period. J Sainsbury was the only one of the traditional large grocers to increase year-on-year sales, with spending up by 0.3% as it returned to growth for the first time since October 2019. Sales at Tesco and Walmart-owned Asda fell by 0.8% and 1.2%, respectively. Meanwhile, Wm Morrison’s sales were 2.0% lower than the same period last year, and as a result, its market share fell from 10.4% to 10.2%.


The new chief executive of Reckitt Benckiser has quietly ditched plans by his predecessor to split the business a little over a year after they were announced, press reports suggested. Laxman Narasimhan, who took over in September, abandoned the “Reckitt 2.0” strategy introduced by Rakesh Kapoor, as he focuses on increasing investment in the group’s brands. Analysts had widely expected the company to spin off its hygiene and home business, which includes brands such as Vanish stain remover and Dettol disinfectant, shifting its focus onto consumer health.

The success of Greggs in 2019 was undoubted. Annual earnings rose by nearly a third over the course of the year, boosted by publicity surrounding the launch of a vegan sausage roll. However, management cautioned that trading this year will be hit by the recent storms and the coronavirus outbreak.

Autos & Transport

A more upmarket version of a ride-hailing service was launched in London. Havn, an all-electric premium chauffeur service that gives passengers the options to adjust playlists and temperature while being driven by a “chauffeur” is now available via an online app. The service launched with a fleet of all-electric Jaguar I-PACEs which can be booked via an app or an online portal. The service is backed by Jaguar Land Rover’s investment vehicle Inmotion. There is one major difference to other operators in the sector – all Havn drivers are full-time employees of the company.

Waymo, the self-driving car project being developed by Google-owner Alphabet, said it raised $2.25bn in a fundraising round led by Silver Lake, Canada Pension Plan Investment Board and Mubadala Investment Company. This is Waymo’s first external investment, which also included Magna, Andreessen Horowitz and AutoNation, as well as Alphabet itself.

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