Stocks under pressure

Concerns about the coronavirus saw the dollar gain some ground against the euro last week and it is trading at around $1.1025 this morning (from circa $1.11 this time last week). Equity markets were under pressure and they are again at the start of this week, with Asian stocks a good deal lower overnight and European indices opening down more than 1% this morning. In line with this, bond yields in the core markets, which fell last week on a ‘flight to quality’, are heading further south, with German 10-year yields at -0.35% (they stood at -0.22% last Monday) and equivalent US yields at 1.65% (from 1.82% a week ago)

Sterling firmed a little against both the euro and the dollar last week as bets on a cut in UK interest rates at this Thursday’s Bank of England meeting were pared back a little. However, with the latest PMIs pointing to just a modest improvement in (UK) economic activity this month, the market still sees about a 60% chance of a 25bps rate reduction this week. The pound is trading just shy of 84.5p this morning and, in the nature of these things, it would not be too surprising if it lost some ground in the run-up to Thursday’s meeting

The Fed meets this Tuesday and Wednesday and looks set to again keep interest rates unchanged while reiterating that they are at an ‘appropriate’ level to sustain the US economic expansion, which is now the longest on record

The UK will formally leave the EU this Friday and enter into a ‘status quo’ transition period running until December 2020, during which time the two sides will attempt to negotiate a new relationship

Data due this week include Euro Area GDP (Q4 2019) and CPI inflation on Friday, with Q4 GDP (Thursday) and inflation (Friday) scheduled as well in the US