US Election Season Gets Underway While the UK leaves the EU

This week finally sees Britain exit from the European Union. While the transition period, secured as part the withdrawal agreement, means that nothing will actually happen for another eleven months, it seems odd not to mention the culmination of something we have written about almost incessantly for three years. Regardless of your position on Brexit, this marks the largest constitutional change to the UK since devolution and its impact will be felt for generations. Elsewhere, while one period of political uncertainty nears an end another is just beginning.

The first votes in the Democratic primary take place in Iowa on 3rd February. This marks the official opening of election season and there will be a near non-stop coverage from now until the general election in November. With a large field of mostly unknown candidates bar former vice president Biden and 2016 democratic runner-up Sanders, expect each twist and turn to be treated as an unexpected shock as the rest of the world scrambles to find out more about each temporary front runner.

Global: Why the Coronavirus impact could be worse than SARS
In terms of the number of infections, the coronavirus has now exceeded SARS. And in terms of global economic impact, the final figure could be even higher than the $40bn hit to the economy SARS caused in 2003. Technological advancements have meant the speed at which these “black swan” events impact asset prices have risen. Last week, western markets were muted monitoring developments: this week they were negative as the virus spread.

Greater interconnectedness’ also means this pneumonia inducing virus will have a strong impact on global supply chains. For example, US companies like Starbucks and McDonalds who have a presence in this region have been impacted. And finally, let’s not forget China. The country’s contribution to world growth has increased greatly since 2003. The country has also evolved. China was able to cope with SARS largely due to its manufacturing dependant model, now, contribution from retail and services outweighs this. With most of China being shut, impact to the nation’s and ergo global growth could be even stronger.

Global: Key Central Banks Hold Interest Rates Steady
To the surprise of few, Federal Reserve (Fed) committee members this week unanimously voted to maintain interest rates, citing improving economic conditions as the main reason against taking action. Interest rate range remains between 1.5 to 1.75 per cent. The only real action noted was the Fed tinkering with one of their levers which controls rates. The central bank is aiming to get the interest rate close to the middle of the range and are doing it by raising the amount of interest it pays banks on the reserves they hold on the Fed’s balance sheet by five basis points; effectively moving rates to 1.6 per cent from 1.55 per cent.

Over in the UK, and in Mark Carney’s final committee meeting the Bank of England also kept rates at 0.75 per cent as improving business sentiment and stronger employment data held the bank from making any changes. Despite both central banks choosing to sit on the side-lines this time, the markets expect both to cut rates this year.

Companies: Facebook Stock Falls Despite Strong Earnings
This week, Facebook’s stock fell seven per cent after last quarter’s earnings report came out. And this is due to the technology giant pretty much being a victim of its own success. Over the last five years, the stock has exceeded market expectations for both revenue and profit forecasts every single end quarter. In Q4 last year, the company again outperformed on both factors, but less than what investors were expecting. Revenues grew 25 per cent to $21bn.

The company’s main source of income is derived from expanding its user base and then using this to sell to advertisers. And the number of users is growing. Facebook hit 2.5bn users across its family of apps. Last year, it grew its overall user base by eight per cent compared to the previous year. One possible explanation for the stock falling is the company’s cautious guidance for this quarter. If tighter regulations rules come into play in turn forcing Facebook to build privacy into their suite of products – the company won’t quite be the same cash cow it is today.