. There have been more confirmed cases and more deaths from the virus, including the first in Europe – an 80 year old Chinese tourist.
Moody’s have adjusted down their global growth forecasts by 0.2% and have cut their expectations of China to 5.2% this year – though that’s surely still got to be guess work, as nobody is quite sure how well contained the virus is and how quickly ‘business as usual’ or something resembling that can resume? China’s growth falling by half a percent has a chain reaction within the region and surrounding countries would see a 0.2% fall as a result. We’re not sure if that’s a linear correlation or if the worse it gets for China the exponentially worse it gets for these countries, but for some even a 0.2% drop would be painful – particularly Japan, who are already suffering with some very adverse GDP numbers from a roll out of tax increases, as this article explains.
The global shipping industry has been significantly disrupted by all of this, with not just ships ferrying goods to and from China heavily disrupted, but the supply chains of ship building and servicing being impacted. This FT article is a relatively long read, but well worth it.
The IMF have spoken about possible action with the MD of the fund, Kristalina Georgieva, saying that “there needs to be bottom-up analysis of the impact so we can then agree on synchronized, or even better, coordinated measures to protect the world economy from a more serious shock”. As comforting as that might be (not very) the issue we come back to is that monetary stimulus isn’t enough when you’ve got governments that aren’t playing ball fiscally. That said, something like this might be enough to finally kick governments into action.
One action that the UK government might take is to tell people to quarantine themselves at home. A report in the Telegraph over the weekend said that officials would likely make the instruction if the cases of the virus in the UK moved into the hundreds. So far there have been more than 3,000 tests but less than a dozen confirmed cases.
Continuing in the UK; Rishi Sunak is under pressure to relax fiscal rules in his new budget. According to an FT article Number 10 have suggested a number of ways that the new Chancellor could bend the rules to accommodate more spending; having a balanced budget on a ‘rolling five year basis’ would allow for a lot of upfront spending in the hope that over time that would create bigger growth. Alternatively they could have a +/- 1% tolerance to the rules. Ultimately it’s going to be up to Boris to decide what is acceptable and the quote from the article we like is “it wasn’t a question of what they wanted to spend more money on. It was more a question of whether there was anything they didn’t want to spend more money on”!
UK house prices are back towards an all-time high, according to Rightmove data. Asking prices are up 0.8% in January, which is a little behind the growth we saw in December, but still in the right direction. Sales are also up by 12% on an annual basis (26% in London).
The Crypto AG story is something we’ve been reading about over the weekend – and wondering what this means for Switzerland’s reputation as a neutral country (probably ruins it). This Washington Post is pretty good if you’re not up to date.
Looking at the week ahead; today is a US market holiday, so will be pretty quiet. Wednesday we see UK inflation numbers, Thursday we get retail sales and Friday we get to see how much borrowing the government is already doing. As usual though, it won’t be what we’re expecting that causes the bigger moves in the market!
Have a great week.