21 February 2020
A mounting number of corporate warnings about the impact of China’s coronavirus outbreak put pressure on global equities although the FTSE 100 fared better than most as its overseas earners benefited from a weak pound. By the close the index was down at 0.3% at 7,436.64.
Next Monday (24 February) the German Ifo Business Climate survey is released. It has a good track record of predicting future movements in German GDP. Tuesday (25 February) the Bank of England Governor Mark Carney is scheduled to appear before MPs to discuss the prospects for UK inflation and economic growth (see Economic update). Later in the day a reading of US consumer confidence is published. Next Thursday (27 February) there is a second estimate of US GDP, the markets will be alive to any upward or downward revision to the 2.1% growth shown in the first estimate. On Friday (28 February) inflation figures from the Eurozone are out.
The banking sector was in focus this week as the full year results season continued. On Tuesday (18 February) HSBC (HSBA) disappointed the market with its numbers. Although group revenues were up 4% to $56bn last year, a combination of higher operating costs – up 22% to $42.3bn due to a goodwill write-off of $7.3bn – and higher provisions for bad loans meant earnings fell from $12.6bn to just $6bn. The bank recorded impressive growth in its Asian unit, with revenues up 7% to $30.5bn and profits up 6% to $18.6bn, but the European and US businesses ‘are not delivering acceptable returns’ in the words of interim chief executive Noel Quinn. As part of a restructuring plan, the bank plans to cut 35,000 jobs. On Thursday (20 February Lloyds Banking (LLOY) reported a 26% fall in full year pre-tax profit to £4.3bn on lower net interest income and provisions for payment protection insurance (PPI) claims. The company was relatively positive on the outlook and also committed to capital generation targets, helping to underpin the dividend. Chief executive Antonio Horta-Osorio said that the UK economy remained resilient and that ‘there is now a clearer sense of direction and some signs of an improving outlook’.
Bank of England Governor Mark Carney, who is set to be replaced Andrew Bailey in March, is expected to appear before MPs next Tuesday (25 February) to discuss the outlook for inflation and the economy. It will be interesting to see if the unexpectedly high inflation number for January has any influence.
Investors looking to gain exposure to technological innovation could consider Polar Capital Global Technology (IE00B42W4J83). The fund invests in global tech businesses, top holdings include Microsoft, Apple and Samsung Electronics.
It is possible to gain exposure to infrastructure as an asset class through exchange-traded funds. One example is Xtrackers Global Infrastructure (XGID) which tracks a basket of international companies involved in major infrastructure projects for an ongoing charge of 0.6%.
27 February – Full year results from consumer goods firm Reckitt Benckiser (RB.) will be an opportunity for a relatively new-look management team, including ex-Pepsi man Laxman Narasimhan at CEO, to outline their plans for the business after a period when growth has disappointed. The company may clarify its exposure to the coronavirus outbreak.
27 February – Results from ad giant WPP (WPP) should reveal how the recovery plan under CEO Mark Read is progressing. Read took over in 2018 in the wake of the acrimonious departure of founder Martin Sorrell. The company is also seen as good indicator of the health of the global economy as when firms are confident they typically spend more on advertising.