Weekly Market Commentary – 24 January 2020

Will this year’s Davos Conference Kickstart Real Climate Change Action?
This week all eyes turned to the Bank of England ahead of the January Monetary Policy Committee meeting. Rates have only moved three times in the last ten years and have hovered around half a percent that whole period. On the surface, a 50% chance of a rate cut back to 0.50% is extremely underwhelming. While the potential move is deeply ordinary, it’s the symbolism that’s generating the buzz. A reversal following two years of minor rate hikes would send a very negative message about the state of the economy.

Elsewhere the annual gathering of the wealthy and self-important at Davos kicked off. While the importance of this gathering is debatable, most years it’s just backslapping and hobnobbing, it is notable how earnestly everyone is discussing climate change this year. 2019 saw the issue enter the zeitgiest, capturing the public’s attention – and that has definitely caught the attention of the elite. Whether all the heartfelt speeches and initiative announcements amount to anything remains to be seen.

Autos: Tesla becomes the World’s second most valuable automaker
Despite struggling with profitability as it tries to scale up production, Tesla’s market cap broke the $100bn level this week. In doing so, it became the world’s second largest automaker by market value. To put it into further context, Tesla is more valuable than the next biggest automaker, Volkswagen, despite selling 97 per cent fewer cars. This suggests markets view being a leader in electric cars as more valuable than leading in actually making and selling cars.

Increasing car sales and its new Shanghai plant are the two factors driving the recent share price rally. Tesla delivered twice as many cars (367,500) last year compared to the year prior. It is also hoped that its new factory will capture more of the Chinese market. If Tesla continues to stay above the $100bn mark on average for the next six months, Elon Musk will receive $350m in the first of up to 12 stock pay-outs.

UK: Manufacturing Optimism Hits Five Year High
Market expectations for the Bank of England to cut interest rates this month, fell ten per cent this week driven by improving sentiment amongst manufacturing businesses and unemployment rates hitting record lows. Odds on the central bank to cut rates is now evens. The CBI survey of business optimism increased by 23 per cent in the last quarter of 2019 – a stark contrast from the -44 per cent recorded in the prior quarter.

Four out of nine monetary policy committee members have stated that they are willing to cut rates if economic conditions don’t improve. According to soft data published this week – they may not have to. The PMI, an index of the prevailing direction of economic trends in the manufacturing and service sectors, depicts an economy coming out of contractionary mode and returning to growth. PMI for the month of January was 52.4 up 1.7 points from December, mainly due to a strong services sector.

Global: Wuhan Virus Wreaks Havoc in China
Millions of Chinese residents preparing to travel ahead of the Chinese New Year saw their plans disrupted by an outbreak of the Coronavirus. A strain of the deadly virus first broke out in the Chinese city of Wuhan, causing neighbouring cities to go into lockdown. So far 26 people have died across China and more than 800 are thought to be infected. There is no current cure for the disease. Cases have also been reported globally but the world health organisation is currently split as to whether an international ate of emergency needs to be declared.

So far, the spread of the Wuhan virus, which comes from the same family as SARS, has only adversely impacted Asian markets. The impact on western markets has been much more muted as investors closely monitor the spread of the virus.