Although fundamental economic indicators showed positive signs, Brexit developments continue to worry markets, the COVID-19 outbreak in China also casted shadows over the global economy, driving the European STOXX 600 Index down by 1.23% (2.52% in US$ terms) in January.
On the Brexit front, more EU officials including Commission President Ursula von der Leyen spoke as the UK proceed with Brexit, highlighting the overly short timeframe for negotiation, it is widely expected that there is unlikely to be any trade deal made within the 11-month transition period. The only silver lining amidst the chaos is the certain exit of the UK, as the European parliament backed the official UK withdrawal plan, which allows European corporations to plan accordingly.
European economic fundamentals stayed weak but showed signs of revitalisation. Eurozone manufacturing PMI continued to contract for twelve consecutive months, while the Euro Area Economic Sentiment Indicator recovered to 102.8 in January, reverting the downtrend. The European economy remains fragile with weaker growth drivers, the COVID-19 outbreak has yet to reflect its impact on the European economy, as there has been a higher dependence on China than market performance suggested. We see limited upside or even a possible market correction in the short-term as the impacts became better understood.