Brexit day, Coronavirus outbreak and interest rates

31 January 2020

The Noise

  • At 11pm today, UK Prime Minister Boris Johnson will hail the “dawn of a new era” as the UK leaves the European Union after a 47-year membership. Most EU laws – including the free movement of people – will remain in force until the end of December, by which time the UK aims to have reached a permanent free trade agreement with the EU.

  • The death toll from the coronavirus outbreak has now risen to 213 and the virus has officially been declared a global health emergency by the World Health Organisation. With a case being reported in Tibet this week, this means that the virus has now reached every region in mainland China. Infections have spread to at least 18 other countries. 

  • After recent weak economic data led to speculation that interest rates could be cut, the Bank of England’s Monetary Policy Committee has voted to keep them held at 0.75%. Recent data showing a post-election improvement in business sentiment was just enough to prevent a rate cut in Mark Carney’s last Committee meeting as Governor before Andrew Bailey takes over in March.

The Numbers


  The Nuance

At long last, the wait is over. Three and a half years since the Brexit vote, today we will finally leave the European Union. In the short term, it seems we’ll barely notice this long-awaited departure, the most noteworthy differences being a change to the colour of our passports and the introduction of a 50p “Brexit coin” carrying the inscription “Peace, prosperity and friendship with all nations”. Also in the UK this week, the Monetary Policy Committee has kept interest rates steady as central banks are on pause whilst they assess longer term economic direction. It seems that separating the longer-term trends from the shorter-term noise is not easy at the moment as markets continue to react to short-term impactful events.

Looking back on the first month of 2020, it’s fair to say we’ve had a gradual step up in things to be concerned about. January began with the US assassination of Iran’s military leader, and since then markets have had to deal with the announcement of relatively weak macroeconomic indicators and the breakout of an uncontrolled, increasingly serious virus. Enough bad news has been thrown at investors that it’s created some volatility – globally, markets are down over the course of this week. Large areas of China being under lockdown is inevitably going to act as a drag on short-term growth figures in many parts of the world. Our job as long-term investors is to continue to look past the noise: where we can see good companies being sold off due to short term fears, we can actively look to see if it makes sense to accumulate positions in these high quality assets for relatively cheap prices.

  Quote of the week

“The barrier or the wall can be of steel instead of concrete if that works better.” Donald Trump.
A section of President Trump’s infamous border wall between the US and Mexico has collapsed in high winds. Video of the event was posted online and shows the wall section swaying violently in the wind as crews try to stabilise it. 130 feet of the newly installed, 30ft-high wall blew over, thankfully harming nobody. Trump’s border plans have faced extensive criticism for their high cost and multiple videos have emerged of people touting the ineffectiveness of the “virtually impenetrable” wall. These include a video of people sliding down the border wall slats like a fireman’s pole, one of an eight-year old girl scaling the wall in seconds, and even footage of a man climbing the wall whilst juggling. 

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