Global Markets Newsletter – February 2020
February was a negative month due to the deadly Corona virus. China is the cause of a global slowdown not only for the first quarter but most probably for the second one. Many factories have shut down, while demand for oil will diminish, leading to lower prices. Energy and technology sectors will be hit the most as implications from the virus. China encompasses a 17% of the global GDP causing repercussions to the global growth by almost 1%. Chinese GDP already hit by 2% from 5% to 3%. On a macro level in the US, interest rates are at 1.75% and inflation is at 2.3%.
In Europe, markets experienced a serious decline due to the Corona virus, which has been transmitted to Italy with serious numbers of infected and more than 10 deaths. Fears that European Economy will further slowdown has led to serious corrections, which might be opportunities for serious placements. Markets corrected after several month,s turning to negative trends, but not to recession traces as yet. Slowdown is imminent and lack of demand may cause deflationary pressures to already negative interbanking rates.
In Greece, stocks suffered heavy losses and bonds remained less volatile with mild corrections. 10-year government bond yield climbed at 1.13% from 0.9%.
The EUR/USD moved in favour of the dollar and it is expected to continue to 1.06 as the european inflation has serious odds to become negative. The 1.08 area has easily been reached and as negative yields and interest rates continue, lack of inflation will trigger bigger losses for Euro.
Our preference remains the US equities versus the European, where we hold no position. Government bonds have marginal returns and corporate bonds bear higher risk for their potential return. US equities hold 70% of the total portfolio, of which the technological sector holds 60%. Cash remains crucial, as corrections are often buying opportunities.
S&P 500 Index YTD (Source: Bloomberg)
Euro-Stoxx 50 (Source: Bloomberg)
EUR/USD (Source: Bloomberg)
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