Economic situation after the first months of 2020
Joaquín González Portfolio Manager
The markets ended January with corrections affecting risk assets, despite optimism over the signing of an initial trade agreement between USA and China, improved growth prospects and central banks committing to accommodative monetary policy.
The deterioration in investor sentiment was triggered by sustained geopolitical risk, with the US and Iran clashing earlier this year and uncertainty over the extent of the coronavirus outbreak that began in China. There have been considerable flows towards the public debt market and a strengthening of the dollar, especially against currencies linked to commodity prices and the Chinese economy in particular (the yuan did not trade during recent weeks due to the New Year holiday).
As for developed currencies, the yen and the Swiss franc benefited from their standing as safe havens, while the euro lost 1.3% against the dollar to 1.1083, and the pound, after the market discounted a strong likelihood of an official rate cut, kept its decline in check at 0.5% when the central bank opted to leave rates at 0.75% on the eve of Brexit.
Looking at commodities, there were corrections across the board with the exception of precious metals, with gold acting as a safe haven. Oil prices, in particular, fell sharply, from the peak of around $70/b reached at the height of tensions in the Middle East to end at $56.3/b, down 15% in the month.
