Coronavirus, what coronavirus?

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (3 – 7 February 2020).


Markets shrugged off the impact of the spread of a novel coronavirus to record a series of new highs, hoping that central bank action can continue to turbocharge markets. The gains were helped by China announcing a reduction in US tariffs to help its ailing economy.  However, the disease continues to spread – and question marks remain about the accuracy of information being released by Beijing about the number of people infected.

There was also a series of positive data releases suggesting that the British economy could be improving.

Donald Trump escaped impeachment – as expected – and turned his ire on his critics. The Democrats were also humiliated by technical issues in its Iowa caucuses.

The FTSE 100 rose 2.3% over the week by mid-session on Friday, boosted by a weak sterling, and the more UK focused FTSE 250 was up 1.5% following some positive data on Britain’s economy.

The novel coronavirus (nCoV)

The economic cost of the novel coronavirus (nCoV) is mounting, as the number of official cases hit 31,000 on Friday morning with more than 600 deaths. There have been rumours of cures and effective treatments that have supported markets this week, the veracity of which remains highly uncertain. Nevertheless, markets have ignored these fundamental issues as central banks continue to act. The People’s Bank of China injected more than £50bn into China’s banking system to support liquidity “during the period of epidemic prevention and control”.

Beijing also announced that China will cut tariffs on some U.S. goods to 5% from 10%, while levies on some other items will be reduced to 2.5% from 5%. The tariffs were imposed in September and December during a brutal trade fight between the world's two largest economies. However, it is clear that the economic cost is mounting, and we have not seen the peak of infections. Indeed, some question the veracity of the figures for infections and deaths being released by Beijing, suggesting the situation may be worse than the official position. Indeed, the index that charts the cost of dry bulk shipping – i.e. shipping products such as coal and iron ore – hit a record low this week, as the virus halted a significant amount of global trade.

Here is a selection of some of the business and economic events relating to nCoV this week:

After oil tumbled into a bear market Opec responded with a proposed cut. Russia is expected to respond in days to an OPEC+ proposal to cut oil production, as the cartel confronts a price rout triggered by the collapse in petroleum demand from China. Opec and its allies recommended a further supply curb of 600,000 barrels a day until June to try and support the price.

Airbus has closed its final assembly plant in Tianjin, China, as a result of the emergency. The plant assembles about 4 A320-family aircraft a month, about 7% of Airbus narrow-body production.

Many airlines have suspended flights to China including Air France-KLM, IAG-owned British Airways. Qantas, Lufthansa, Delta, American Airlines and many more. Virgin Australia suspended flights to Hong Kong.

China’s Zhejiang Geely, the parent of Geely Automobile, announced plans to develop a car that is virus-proof. The company said it will spend about £40m developing a new vehicle that can keep out harmful substances in the atmosphere and purify the air in the car. Also, Sweden's Volvo, which is owned by Geely, said fourth-quarter profits had been boosted by sales growth and cost cuts.

In the tech sector, Apple and Alphabet-owned Google, among others, began closing stores and offices, limiting business travel to China and bracing for supply chain disruption. Electronics giant Foxconn, maker of the Apple iPhone, is taking the unusual step of switching part of its production to making surgical masks. It has closed its electronic production line because of the virus.

Carmakers’ supply chains have been significantly impacted.  Fiat Chrysler warned it could close a plant in Europe if the supply of parts from China continued to be affected. Companies such as Toyota and Peugeot-Citroen have said their supply chains may be affected but neither expects to close UK plants as a result. Toyota said it had yet to factor the impact into its financial predictions, after it raised profit guidance this week. Hyundai suspended operations at its giant Ulsan complex in South Korea, the most productive car factory in the world, due to a lack of parts.

China’s auto production is likely to decline “materially” during the first quarter and could trim overall production by as much as 2 % this year because the coronavirus epidemic has forced carmakers to delay reopening their plants, according to S&P Global Ratings.

Luxury goods companies face a major hit, as Chinese customers account for about 35% of the global luxury industry. Ralph Lauren closed half its stores in China, Prada has temporarily closed some stores. Burberry makes about 16% of its sales in China and has closed 24 of its 64 stores there. Luxury groups LVMH and Kering donated more than $3m to help fight the infection.

Nike warned of a “material” hit as it announced plans to close half of its stores in the country.

The Walt Disney Co expects the outbreak will take $175m from operating income if its theme parks in China remain closed for two months.

Carlsberg warned over a potential sales hit in China, as the nCoV outbreak forced karaoke bars and restaurants to temporarily close. The Danish brewer’s sales in China rose 19% last year.

The Chinese-ruled gambling hub of Macau asked casino operators to close for two weeks to help curb the spread of the virus.

A state-run Chinese research institute applied for a patent on the use of Gilead Sciences’ experimental US antiviral drug Remdesivir, which scientists think could provide treatment for the nCoV. A study published in the New England Journal of Medicine last week reported a nCoV patient in the United States was found to show an improvement after taking Remdesivir, which is also used to treat infectious diseases such as Ebola.

Biotechnology company Novacyt said it has applied for emergency approval from the US FDA for a test product for nCoV. The company also said it was in talks with public sector hospitals in Britain.  "As one of the first companies to develop and launch a test to detect the 2019 strain of nCoV (coronavirus), we have received unprecedented interest in our test," chief executive Graham Mullis said.

The Bank of Thailand (BoT) cut interest rates by 25 basis point to 1.00%, their lowest ever level. The BoT statement noted that “the Thai economy would expand at a slower rate in 2020 than previously forecasted and much further below its potential due to the outbreak of nCoV, the delayed enactment of the Annual Budget Expenditure Act, and the drought that would affect a large number of related businesses and employment”.

Garry White argues that technology titans could help crush disease outbreaks such as nCoV, but there are privacy issues that need to be resolved here.

It’s not just nCoV that is causing problems for Beijing. The Chinese government is facing pressures on a number of fronts. John Redwood looks at why investors may be spooked by its governance issues here.


Early in the week, sterling slid to levels against the dollar not seen since before the general election in December. Boris Johnson and the EU’s chief negotiator Michel Barnier set out their negotiating positions ahead of next month’s trade talks. The UK prime minister’s comments revived fears of a hard Brexit at the end the year. Mr Johnson said the UK will refuse close alignment with EU rules on social protection and the environment and reject the jurisdiction of European courts. The EU’s chief negotiator Michel Barnier said that Brussels would only offer a “highly ambitious” trade deal with zero tariffs on goods if Britain aligned with EU standards.

Britain is seeking far-reaching reductions in tariffs from a trade deal with the US, UK trade minister Liz Truss said. "We will drive a hard bargain and, as with all negotiations, we will be prepared to walk away if that is in the national interest," Truss said in a statement to parliament. She said Britain wanted a deal with the United States to "secure comprehensive, far-reaching and mutually beneficial tariff reductions ... which will increase access to the US market for UK businesses, and lower prices and increase choice for UK consumers."


Washington may now turn its trade grounds on Europe. EU Trade Commissioner Phil Hogan was in Washington for the second time in less than a month as the 27-nation bloc seeks to revive a transatlantic commercial truce. Garry White argues that the biggest victim of US tariffs in 2020 could be the EU here.

Donald Trump was “apoplectic” with Boris Johnson during a phone call to discuss the prime minister's decision to allow Chinese company Huawei a role in Britain's 5G mobile phone network, reports suggested.

US Attorney General William Barr, a former senior lawyer for Verizon, suggested that members of the US technology and telecom industries should invest in Ericsson and Nokia to help them compete directly with Huawei. Some have suggested they take controlling stakes.

Vodafone said that swapping Huawei components out of European networks' cores will cost it €200m over five years and warns other countries that copying the UK market share cap could mean significant 5G delays. “We felt it was time to take Huawei out of the core. It takes time to take equipment out and to do a swap without disrupting customers,” chief executive Nick Read said alongside its third-quarter results statement.

Chinese companies have joined forces to take on Google’s app store. Xiaomi, Huawei, Oppo and Vivo have created a platform for developers outside China to upload apps onto all of their app stores simultaneously. Alongside Trump’s targeting of Huawei, this is another example of how a digital divide between east and west is taking shape. Garry White argued that a clash of politics and technology means a Splinternet, or cyber iron curtain, is coming - here.


Are there signs of green shoots appearing in the British economy? One swallow does not a summer make, but this week we had the following pieces of relatively cheery news:

  • Output in the sector in January fell at its slowest rate since May of last year. The IHS Markit/Cips gauge of construction output rose to 48.4 in January from 44.4 in December. The reading was still below the 50 breakeven mark, which indicates contraction. House building was the best performing area, where output fell only slightly. Commercial construction also improved, but civil engineering was the worst-performing category.
  • The British services sector also expanded faster than previously thought in January, according to IHS Markit’s purchasing managers’ index. The final reading was 53.3 points, representing a stronger expansion than the 52.9 indicated by early data.
  • There was also some brightness in data from the UK manufacturing sector, which had its best performance for nine months in January. The IHS Markit/Cips manufacturing purchasing managers index rose to 50 in January as new orders and business confidence recovered.
  • British companies hired permanent staff in January at the fastest rate in just over a year. The index of permanent job placements from the Recruitment and Employment Confederation and accountants KPMG hit its highest level since December 2018 at 52.3, up from 51.9 in December.
  • UK retailers had their biggest sales increase in six years in January, helped by the election and price-cutting. Accountancy firm BDO said its High Street Sales Tracker found sales jumped by 5.7% last month, the biggest annual rise since January 2014, with gains seen across all sectors.
  • UK house prices rose at the fastest annual rate since February 2018 last month, increasing by 4.1% after a 4.0% rise in December, figures from mortgage lender Halifax indicated.

The US jobs market kicked off 2020 on a tear, adding 291,000 in private payrolls in January – the best monthly gain since May 2015, according to a report Wednesday from ADP and Moody’s Analytics. That was well above the 150,000 estimated by economists.

The US trade deficit with the EU hit a record $177.9bn (£137bn) last year. However, the deficit in exports versus imports from China shrank to $345.6bn, 18% lower than the record high level of $419.5bn seen in 2018.

German industrial orders unexpectedly plunged in December. Contracts for German goods fell 2.1% in December mon, the biggest drop since February. A Reuters poll had forecast a 0.6% rise


As expected, Donald Trump was acquitted in his impeachment trial by Republicans in the Senate. Mr Trump then took aim at his accusers in a rambling and profane speech in the White House.

The winner of the first primary vote in Iowa was… Donald Trump. There was embarrassing chaos in the Iowa Democratic caucuses, where the contest results were delayed by technical glitches. The results were three days late, with Pete Buttigieg announced as the winner, by a slender margin. The outcome could also be good for billionaire Michael Bloomberg. Mr Bloomberg decided to forego the Iowa contest and is preparing for the so-called Super Tuesday. He is running a self-financed campaign based on the central themes of competence and data -- two things that were lacking in Iowa.

The protests in Hong Kong are continuing to hit its economy. Retail sales in December fell 19.4% year-on-year, with a revised 23.7% drop in November. In October, retail sales in territory fell 24.4%, the steepest fall on record.

Profit warnings

Tobacco giant Imperial Brands warned that its first-half earnings and full-year profit are likely to fall amid a global crackdown on e-cigarettes. The US’s ban on certain flavours of vapour devices came into force this week.

Litigation financier Burford Capital warned profits would fall in its 2019 results. The company invests in legal cases in return for a slice of the proceeds but revealed profits would be hit after fewer cases closed last year than in 2018.

Recruitment group Staffline issued its fourth profit warning in a year.  The warning came auditor Grant Thornton, which is reviewing its books, found the business will need to reduce the value of some of its assets.

Denmark’s largest bank, Danske Bank, warned that profits could halve in the current year. The company has been hit by negative interest rates but also as a result of the cost of a number of investigations into its business. Last year it was revealed that suspicious payments totalling €200bn from Russia and elsewhere flowed through its branch in Estonia.


Smart meter company Calisen listed in London on Friday, the UK’s first major IPO this year. Its shares rose about 4% in early trade.

US mattress group Casper Sleep lowered the price range for its planned IPO to $12 to $13 a share from a previous $17 to $19, a move that reduces its valuation to just over $500m. This is less than half the $1.1bn at which it was valued in its last private funding round. However, the shares jumped by as much as 30% when the shares listed on Thursday, before finishing the session 13% higher.

Vodafone said it’s preparing for an IPO of its European wireless towers in early 2021.

Warner Music Group, home to a host of artists such as Ed Sheeran and Katy Perry, plans to float in the US. Billionaire Sir Len Blavatnik bought the company for $3.3bn in 2011, when the industry was in the depths of a multi-year slump. He is expected to get a significant return on his investment.

Several Saudi Arabian companies are planning to list shares on the Riyadh exchange in coming months in the wake of oil giant Aramco’s record IPO, reports suggested. The Sulaiman al-Habib Medical Group, one of the Middle East’s biggest hospital operators, is expected to list later this month.

US earnings

Alphabet, the owner of search engine Google, missed Wall Street forecasts in its fourth-quarter earnings. Its overall revenue rose by 17% to $46.08bn in the last three months of the year, its slowest fourth-quarter growth in four years and just under the $46.94bn expected by US analysts.

Twitter shares jumped after its fourth-quarter numbers missed analyst estimates for earnings per share but beat revenue and active user expectations. Quarterly revenues exceeded $1bn for the first time.

Uber lost $1.1bn in the last three months of 2019, even as revenue jumped 37% to $4bn and the number of trips made on its platform rose by 28%. The shares rose after management said it expected to profitable in the last quarter of 2020.

The Walt Disney Co beat analysts’ estimates for its quarterly revenue and noted it already had 26.5 million subscribers for its Disney Plus streaming service in the quarter.

Snap, owner of social media app Snapchat, missed Wall Street estimates for fourth-quarter revenue as it faced tough competition from digital advertising giants Google and Facebook, sending its shares sharply lower.

Has Donald Trump rescued the US newspaper industry? Shares in the New York Times jumped to a 15-year high after the company said it gained more than 1 million digital subscribers in 2019.

Ford Motor lost $1.67bn during the fourth quarter and missed Wall Street earnings expectations on increased pension contributions and higher North American warranty and labour costs. Its outlook statement for 2020 was also disappointing.

Yum Brands missed analyst estimates for quarterly like-for-like sales growth, hurt by the poor performance of its Pizza Hut chain, which is being hit by food delivery services.


Amazon officially became the fourth technology company to join the $1 trillion club this week. The company’s valuation touched the milestone in intraday trading last week but failed to maintain the valuation through the close. On Tuesday, its official closing price was higher than this milestone. Other members of the tech trillion club are Apple, Microsoft and Google-owner Alphabet. Amazon founder and chief executive Jeff Bezos sold nearly $3.5bn worth of shares in the online retailer over the last week.

The Apple Watch outsold the entire Swiss watch industry in 2019, according to a report from Strategy Analytics. The research group estimated that Apple shipped 30.7 million units worldwide of its smartwatch last year, compared to 21.1 million for all Swiss watch brands combined.

Things are going from bad to worse and Japanese technology investor Softbank. Following last year’s WeWork debacle, where Softbank overvalued the temporary office group and was forced to pull the float, there was more bad news for founder Masayoshi Son. Michael Ronen, a former Goldman Sachs banker who joined SoftBank in 2017 and became one of five US managing partners at SoftBank’s $100bn Vision Fund, has left the fund.  Mr Ronen said his departure was tied directly to the failure of SoftBank to raise any outside investment for the company’s second Vision Fund.

Social media users are being left in the dark about the way major platforms target information at them, the government’s artificial intelligence adviser warned. The Centre for Data Ethics and Innovation called for tighter regulation of online targeting systems, which use personal information about users to target advertising.

Reports suggest that International Exchange Inc (ICE), the owner of the New York Stock Exchange, has made an offer for auction website eBay for more than $30bn. Although at first, the deal could seem odd, both companies are essentially electronic marketplaces that match buyers with sellers, so there is some apparent logic in a deal. ICE, however, denied it was interested in buying the online marketplace.   

Shares in Micro Focus tumbled after it posted a decline in full-year profit and sales and announced the departure of its chairman Kevin Loosemore following what is referred to as a “challenging” year. In July last year, Mr Loosemore sold half his stake in Micro Focus to “diversify” his portfolio, netting around £11.6m. Shares in Micro Focus are down by about a quarter in the year to date.

In a story related to Micro Focus, Autonomy founder Mike Lynch submitted himself for arrest in what his legal team said is a formality triggered by a US extradition request. Mr Lynch – who is facing charges of securities fraud, wire fraud and conspiracy in the US related to the 2011 sale of Autonomy to Hewlett Packard –will contest the extradition. Some of Autonomy’s assets are now owned by Micro Focus.


Spotify's emphasis on podcasts is continuing to pay off. Management said in its fourth-quarter earnings report that its saw a 200% rise in the hours of podcast streamed. Paid subscribers grew nearly 30% year-on-year and it had 271 million total active monthly users as of the end of 2019.


Brent crude futures fell 5.5% to trade at about $55 a barrel over the week by mid-session on Friday.

BP beat City expectations in its fourth-quarter results, but profits still fell by about a quarter year-on-year due to the weak oil price. Despite the sharp fall in profits, the oil behemoth raised its dividend – as previously promised. Shareholders will receive 10.5 US cents per share for the last quarter, up 2.4% from the same period in 2018. This was chief executive Bob Dudley’s last earnings release, as he retires at the end of March. He will be replaced by Bernard Looney, currently head of BP’s exploration and production unit. Mr Looney is expected to announce new climate targets for the company in the coming months.

Investment firm Riverstone sold its stake in Lancashire-based fracking group Cuadrilla Resources to an Australian mining specialist. Following the completion of the deal, AJ Lucas Group's holding in the company will increase from 47.6 % to approximately 93%, with the remainder of the shares primarily held by current and former employees. Fracking is currently suspended in the UK after ministers decided in November that it was not possible to accurately predict the probability or magnitude of earthquakes linked to its operations.

EnQuest said its oil production was likely to drop this year due to the shutdown of two North Sea platforms. However, the shares rose of the group revealed production in 2019 rose 24%.


Gem Diamonds said on Tuesday that it has recovered an exceptional 183 carat white Type IIa diamond from its flagship Letšeng mine in Lesotho. Analysts say the stone could be worth up to $5m.


Credit Suisse's chief executive Tidjane Thiam resigned following a spying scandal at the Swiss bank. Mr Thiam is stepping down after five years at helm months after it emerged two former employees had been placed under surveillance. Mr Thiam said he did not know the spying was taking place,

Metro Bank said it was undergoing a major review of its compliance controls after the lender handled money from Iran and Cuba, breaching US and EU sanctions. The review is being carried out by DLA Piper. Metro Bank hired the law firm after receiving the funds from Iran last year. The bank previously notified US officials of the Cuba breach in November 2017.

Insurer Admiral said it 2019 numbers would be ahead of City expectations. Insurer Beazley posted a better-than-expected surge in full-year pre-tax profit, as three of its six divisions achieved double-digit growth.

There was actually some good news for Deutsche Bank after US fund manager Capital Group took a 3.1% stake in the bank. Capital Group is now one of Deutsche’s largest shareholders. The Qatari royal family is its biggest shareholder, with a 6.1% interest, followed by BlackRock with a 4.5% stake.


Britain’s supermarkets had a subdued start to 2020, with all of the major grocers seeing year-on-year sales declines in latest three-month period. Market researcher Kantar revealed that total UK grocery sales rose just 0.3% in the 12 weeks to January 26, as consumers cut down on alcohol and meat, possibly driven by campaigns for “Dry January” and “Veganuary”. Sales at J Sainsbury fell the least, down 0.6%, followed by Tesco (down 0.6%), Walmart’s Asda (down 2.2%) then Wm Morrison (down 3.0%). All of the big four continued to lose market share to German-owned discounters Aldi and Lidl, whose sales rose 5.7% and 11.1% respectively. As a result, Tesco's market share dropped to 27.3% from 27.7% a year earlier, J Sainsbury to 15.8% from 15.9%, Asda to 14.9% from 15.3%, and Wm Morrison fell to 10.3% from 10.6%.

Other retail

Mike Ashley’s Fraser Group (which used to be known as Sports Direct) bought a 12.5% stake in luxury British handbag maker Mulberry as part of his plan to bring his retail empire upmarket. The sale price was not disclosed but based on Friday’s share price, when the transaction took place, it would have been worth just under £19m.

Ikea announced its first-ever big store closure in the UK. The Swedish flat-pack furniture specialist unveiled plans to shuts its Coventry city centre store this summer, blaming high operating costs and changes in customer behaviour that resulted in “consistent losses”.

Property & construction

Plumbing giant Ferguson confirmed it is considering switching its stock market listing to the US this year, as it separates from its UK arm Wolseley. Management is considering two options: a dual listing or switching its primary listing to a US stock exchange. The later would mean the shares were removed from the FTSE 100 index. The group also announced a $500m share buyback, which boosted its shares.

House builders Barratt Developments and Redrow both struck an upbeat tone about their prospects. David Thomas, chief executive of Barratt said the group had seen “strong forward” sales since the start of the year, while Redrow noted that private reservations since 1 January are up 15% year-on-year.

Airlines & travel

International air safety regulators are likely to agree on the design fixes needed to return the Boeing 737 Max aircraft to service, the administrator of the US Federal Aviation Administration (FAA), Steve Dickson said. Mr Dickson declined to put a timeframe on the plane’s return to service but said that the Max could take a certification flight in the next few weeks.

Bill Franke, a US no-frills airline tycoon, announced plans to sell his stake in Wizz Air. Indigo Partners, Mr Franke’s private-equity group, said that it was immediately selling most of its 20.6% stake in the East European carrier, which is worth about £624m at market prices. He is expected to sell the shares at a discount.


The UK will ban the sale of new petrol, diesel and hybrid cars from 2035, five years earlier than planned, the government announced.

The number of UK new car sales fell 7.3% at the start of 2020, with sales of new diesel cars plummeting 36% year-on-year in January, the worst performance in 20 years, statistics released by the Society of Motor Manufacturers and Traders showed.

Shares in electric vehicle maker Tesla had a volatile week. On Monday, an analyst at New York’s ARK Investment Management predicted the company's share price could rise to as much as $7,000 sending its shares above $950 apiece. However, by close of play on Thursday the shares had fallen to $748 – up 79% in 2020 so far.

Governments want to make rapid progress in cutting emissions, which means changing from vehicles that run on petrol and diesel to cars that run on batteries. This will cost the industry dearly. John Redwood looks at the issue here.


GlaxoSmithKline reported a quarterly profit that fell short of analysts' expectations because of pricing pressure, mainly hitting its respiratory drugs. The drugs group now expects 2020 adjusted profit to be down 1% to 4% after 2019 adjusted earnings rose 1%. The forecast did not include any potential impact on its business from the nCoV outbreak that has killed more than 600 people in China. The company said it has begun its planned split into two companies following the merger of its over-the-counter products into a venture with Pfizer.

The rollercoaster ride in shares in NMC Healthcare continued. Its shares slumped by about a fifth on Monday but regained some of the losses after management said it knew of “no specific reason” for the plunge. Over the last few months, the hospital operator has been hit by an attack from short-seller Muddy Waters and by its major shareholders selling large chunks of their stakes.


Royal Mail shares sank to a new all-time low after the management warned that the outlook for the 2020-21 fiscal year was "challenging" and said the threat of a labour strike in late 2019 hurt parcel revenue growth during the Christmas period.

Garry White is Chief Investment Commentator at Charles Stanley & Co. Limited, which is authorised and regulated by the Financial Conduct Authority.

DFM Directory
Outsourcing Partners

Money Marketing’s DFM & Outsourced Fund Solution Centre

Browse our directory of Discretionary Fund Managers, to manage your client portfolios, and Fund Providers, to search for a suitable one-stop shop fund solution.
Go to the profile of Charles Stanley & Co Limited

Charles Stanley & Co Limited

Charles Stanley works with you as an extension to your own offering. We understand the challenges that Financial Advisers face in a continually changing world; meanwhile investors increasingly rely on you to make sense of the complex world of finance. Finding the right investment support to help you manage your client relationships and build your business is more important than ever. Our Bespoke Discretionary Managed service is designed to give you the time to look after the personal and professional relationships with your clients whilst we, operating within your agreed parameters, take over the responsibility of looking after your clients’ investments. You can have peace of mind that your manager is the same person that invests for you, meaning you speak to the person that is directly responsible for each client’s portfolio. All our Investment Managers have the support of a central team of researchers and specialists.

No comments yet.