Last Week in the City: Facebook faces-off with the Aussies

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 19 February 2021.

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  1. Garry White

Markets recognised the success of the UK’s vaccination programme, sending sterling to $1.40 for the first time since April 2018. Currency traders were optimistic about the success of the UK’s world-leading vaccination programme.

Vaccines are "doing the job" when it comes to cutting the number of people infected with Covid-19 across the UK, Professor Adam Finn, a member of the UK’s Joint Committee on Vaccination and Immunisation noted. He said that everything was “moving in the right direction" when it came to the impact of vaccines on the pandemic.

The Australian government’s bid to make social media companies pay news organisations for content stepped up a gear after Facebook banned all Australian news from its platforms. Australians were unable to post links to news articles or view the Facebook pages of local and international news outlets, while Australian news sources disappeared from the site worldwide. Prime minister Scott Morrison was unmoved and said he had the support of other countries’ leaders.

Japan’s Nikkei 225 passed 30,000 for the first time in three decades, boosted by hopes of rising corporate earnings and its technology companies. The FTSE 100 has been a relative underperformer for many years because of its high weighting in financial and commodity companies. The indices that have outperformed have businesses that look to the future. We explain Why you should know your index here.

The FTSE 100 rose 0.5% over the week, with the FTSE 250 up 01% by the middle of Friday’s trading session.

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Covid-19

Prime Minister Boris Johnson is expected to ease some UK restrictions from 8 March when he announces a roadmap out of lockdown on Monday, 22 February. Reports suggested that lockdown is unlikely to be eased significantly until daily Covid-19 cases are in the hundreds, compared with more than 10,000 a day now. The re-opening of schools is the government’s main priority. The media also reported various reopening dates for hospitality, with optimistic suggestions varying from Easter weekend to May, with the caveat that the initial reopening may be for outdoors rather than indoors.

Japan confirmed a new variant of Covid-19 had been found in its latest spike in infections. The new variant was found in 91 cases in the Kanto area of eastern Japan and in two cases at airports. "It may be more contagious than conventional strains, and if it continues to spread domestically, it could lead to a rapid rise in cases," Japan’s Chief Cabinet Secretary Katsunobu said. The new strain appears to have originated overseas but is different from other types that have been found sporadically in Japan, according to the country’s National Institute of Infectious Diseases.

The chief executives of the UK’s largest airlines – IAG-owned British Airways, easyJet, Virgin Atlantic, Ryanair and Tui – called on Boris Johnson to include plans for the restart of international travel in his roadmap for the easing of lockdown. They warned him that without a clear plan, the UK’s economic recovery from the pandemic would be hampered by a lack of global connectivity.

The British state must take a bigger role in supporting businesses and the public, just as it did in the aftermath of World War Two, Labour Party leader Keir Starmer said. "I believe there’s a mood in the air which we don’t detect often in Britain. It was there in 1945 after the sacrifice of war, and it’s there again now," he said. "It’s the determination that our collective sacrifice must lead to a better future." The opposition leader proposed the creation of a "recovery bond" to allow the public to put their household savings into directly funding projects via the state-run National Infrastructure Bank.

The UK is to provide Pakistan with 17 million doses of the Oxford University-AstraZeneca vaccine, with the first seven million expected before April. The next ten million doses are expected to be delivered before June. This will help protect 8.5 million people from the virus, which has already claimed more than 12,000 lives in Pakistan. The vaccine will be provided through the World Health Organisation’s Covax facility. The European Union also doubled its funding to Covax by €1bn. Garry White explains why it is in the interests of us all – rich or poor – for governments to support the Covax facility here.

Russia has offered the African Union 300 million doses of its Sputnik V Covid-19 vaccine, with the offer including a financing package for countries wanting to secure the injections.

When so many people agree about something there is always the worry that things may not be as bright as they seem. Is this the case with the optimism about a recovery from the pandemic? We share our concerns and worries here.

Economics

UK inflation edged up in January as consumers bought new sofas and duvets and spent more on food, video games and other home entertainment as the country went into its third national coronavirus lockdown. Annual consumer price inflation rose to a three-month high of 0.7% last month, and many economists expect it to overshoot the Bank of England’s 2% target later this year, as temporary tax cuts and a cap on household fuel bills expire. Spending in stores and online fell by more than 8% last month while government borrowing was the highest for a January since modern records began but much lower than City economists had expected.

The US Federal Reserve debated how to lay the groundwork for the public to accept higher inflation, and also the need to “stay vigilant” for signs of stress in buoyant asset markets, according to minutes of its 26-27 January meeting. Policymakers at the central bank said they were still prepared to keep their easy monetary policy on track to help heal a job market still ailing from the impact of the pandemic, even if inflation rose above target.

Geopolitics

US Treasury Secretary Janet Yellen stressed the importance of cooperation with the European Union in telephone calls with European Central Bank President Christine Lagarde and the European Commission’s vice president for the economy, Valdis Dombrovskis, the Treasury Department said. The discussions involved ways to deepen transatlantic cooperation on economic and financial issues.

Australian military ships and aircraft will continue to patrol the South China Sea amid warnings from China that a declaration of independence by Taiwan would “mean war”. With Taiwan reporting an increase in Chinese military aircraft in its air defence zone, and with Beijing cautioning independence forces against “playing with fire”, the Australian government is closely monitoring developments in the region. Earlier in the week, a US Navy warship sailed by islands claimed by China in the South China Sea in a “freedom of navigation operation”.

The Biden administration said it expects Saudi Arabia to “change its approach” to the US and wants to minimise any direct contact between Joe Biden and the country’s de facto ruler, Crown Prince Mohammed bin Salman, or MBS as he is known. This is a complete change to the Trump administration, which showered the controversial prince with attention and praise. US intelligence officials are expected to release a declassified report to Congress that will describe its assessment of MBS’s culpability in the murder of Jamal Khashoggi, the Washington Post journalist who was murdered by Saudi officials in 2018.

Cryptocurrency

North America’s first Bitcoin exchange-traded fund (ETF) got off to a stellar start in its debut, with investors exchanging $165 million worth of shares. This US investment is the first Bitcoin product that’s officially labelled as an ETF debuted on Thursday in Toronto.

To read Charles Stanley’s opinion and policy on cryptocurrency, click here.

Technology

The battle to regulate big tech continues with some potentially globally significant events in Australia. Facebook removed Australian new content from its site and app ahead of a new law in the country that aimed to make social-media companies pay for news content. From Thursday Australians were unable to post links to news articles or view the Facebook pages of local and international news outlets, while Australian news sources disappeared from the site worldwide. Critics argued that the news blackout in Australia means misinformation could come to dominate the platform in the country, with fake news and conspiracy theories left untouched – while credible sources have been cut off. Australian Prime Minister Scott Morrison vowed to press ahead with laws, saying he had received support from world leaders after the social media giant blacked out all media. Canada said it would also try and target Facebook for payment for news content.

However, a month after Alphabet-owned Google threatened to shut down its search engine in Australia to avoid what it called “unworkable” content laws, the country’s two largest free-to-air television broadcasters have struck deals with the group, reports suggested. Google has also agreed to pay Rupert Murdoch's News Corp for content from news sites across its media empire. News Corp said it would be sharing its stories in exchange for "significant payments".

The UK Supreme Court dismissed Uber’s appeal against a landmark employment tribunal ruling that its drivers should be classed as workers with access to the minimum wage and paid holidays. The decision was unanimous.

Mining and commodities

Ivan Glasenberg delivered his final financial results as chief executive of Glencore by reinstating a dividend of $1.6bn for shareholders, despite reporting a net loss of $1.9bn for last year. Mr Glasenberg will step down after 20 years as head of the mining group in June after a difficult 2020 in which Glencore was forced to scrap its $2.1bn dividend in August and write down the value of its assets by $5.9bn.

Analysts believe a new commodities supercycle is underway. Garry White, who was mining correspondent at the Daily Telegraph newspaper during the last supercycle, explains why the current crop of FTSE 100 mining executives should learn lessons from the mistakes made by their predecessors. Read his view here.

Financials

NatWest (formerly Royal Bank of Scotland) slumped to a loss of £351m for 2020 compared with a profit of £4.2bn in 2019. Management also confirmed it intends to pull out of Ireland, with plans to wind down and sell assets from its local Ulster Bank operations after an “extensive” review.

Energy

A deep freeze in the significant oil-producing state of Texas shut down production and sent energy prices higher. The severe winter storm resulted in demand for natural gas spiking and supplies needed to power electric generators and heat homes dried up. Estimates vary, but about 4 million barrels per day of crude oil production and 21 billion cubic feet of natural gas production was lost, according to analysts. Texas refiners halted about a fifth of the nation's oil processing amid power outages and severe cold. It will take several days for oilfield crews to deice valves, restart systems and begin oil and gas production. Brent crude futures rose 0.7% over the week by mid-session Friday to trade at about $62.90 a barrel.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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