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In Sterling terms, US and Global equity markets have started 2020 in positive territory. Major European, Asia Pacific and Emerging Markets indices are showing modest gains and the FTSE 100 is flat.

The UK will officially leave the European Union on 31st January and enter into a transition period, which is currently set to last until the end of 2020. The UK will no longer have any members of the European Parliament but will remain in the EU’s customs union and single market until the end of the transition period. The UK will also still be party to around 40 trade deals that the EU has with other countries.

It remains to be seen if the UK can reach a trade deal with the EU in 2020. On the UK side of negotiations, Boris Johnson’s large majority in the House of Commons should assist, but it remains to be seen what negotiating stance the EU will take.

On the positive side, UK economic data remains solid and inflation is still well below the Bank of England’s 2% target, meaning interest rates are likely to stay low. Whilst this is not welcome news to savers, low interest rates should support the economy and provide liquidity to equity and bond markets.

The US remains the world’s largest economy, so US interest rates are a significant influence on global markets.  The Federal Reserve moved to support the economy via interest rate cuts in 2019, and US economic data remains strong. We continue to keep close tabs on this and the direction of US interest rates.

Economic indicators in Europe continue to show signs of a mild recovery. The “phase one” US-China trade deal agreed towards the end of 2019 could be positive for many European markets, especially Germany, due to these countries being major exporters to China, although the coronavirus outbreak could temporarily affect this.

The coronavirus outbreak is potentially significant for China and its major trading partners. The most comparable event is the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2002-2003. SARS lasted for around nine months and killed 800 people. Academic studies estimate that SARS caused China’s GDP growth to decline by between one and two percentage points. According to data presented by Schroders, at the time of the SARS outbreak in 2002, China made up 4.2% of the global economy, and contributed 18% to world GDP growth. By 2018, China’s share of world GDP had risen to 15.8%, with 35% of global growth coming from China. So the coronavirus could potentially have some impact on global economic growth in 2020, depending on the severity and duration of the outbreak. We will be keeping a close eye on the situation.

This article is for information purposes only. It does not constitute investment advice and is not a recommendation to invest. The value of investments and the income from them may go down as well as up and you may not get back your original investment.

Date of publication: 29 January 2020

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