Last Week in the City: Investors positive on pandemic end

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 5 February 2021.

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  1. Garry White

Global equities approached record highs on Friday, as progress in vaccine distribution and US stimulus hopes boosted sentiment. The dollar had its best weekly gain in three months.

The FTSE 100 rose 1.6% over the week, with the more UK-focused FTSE 250 up 3.5% by the middle of Friday’s trading session.

“Whilst first-quarter global growth will be at best sluggish, reflecting the recent wave of the virus in the US and Europe, market participants are looking ahead to a reopening of the global economy from the second quarter and beyond.” – Jon Cunliffe, Charles Stanley’s Chief Investment Officer review market action in January here.

“While we still like the US market, we have recently pared-back our exposure in favour of Asia.” Jon Cunliffe looks at prospects for the rest of the year here.

Covid-19

Expectations of a large stimulus by US President Joe Biden’s administration supported risk sentiment. It appears likely that the Democrats will go on their own and not compromise with Republicans on a smaller package,

Johnson & Johnson asked US regulators to approve the world’s first single-dose Covid-19 vaccine, an easier-to-use option that could boost scarce supplies. The application to the US Food and Drug Administration (FDA) follows its 29 January report in which it said the vaccine had a 66% rate of preventing infections in its large global trial. The company also said it will apply to European authorities for approval in coming weeks.

The pace of our economy recovery depends on the speed of vaccine deployment – not just in the UK, but around the world. Garry White looks at the perils of distribution here.

Economics

The Bank of England said that the UK economy could hit pre-pandemic levels in early 2022 if households start spending the £125bn in pandemic savings. UK households have built up record levels of savings during the Covid-19 pandemic, saving up to five times as much as in any other nine-month period on record. At least £6.25bn of pent-up savings is expected to be spent, particularly as the vaccine is rolled out.

Geopolitics

UK media regulator Ofcom revoked the licence of CGTN, the English-language sister channel of Chinese state broadcaster CCTV, after concluding that China’s ruling Communist Party had ultimate editorial responsibility for the channel. The Daily Telegraph also reported that Britain had in the past year expelled three Chinese spies who were in the country on journalism visas.

A US warship sailed near the Chinese-controlled Paracel Islands in the disputed South China Sea in what the US navy said was a “freedom of navigation operation”. This was the first such mission under President Joe Biden’s administration. The US also officially thanked China for helping it resolve some chip shortage issues in the auto sector. The independence of Taiwan is one of the big issues causing tension between China and the US.

Instead of reaching out to Republicans, President Biden has proved to be energetic in setting out his agenda in a blizzard of Executive Orders. We look at the big changes happening in Washington here.

The ‘green revolution’

Joe Biden’s ‘Build Back Better’ plan means there will be major changes in the investment and business worlds. We look at the implications of the year of net-zero carbon targets here.

Podcast: Green Revolution - What is it and why does it matter? In this episode Investment Managers Giles McKean and Emma Foden-Pattinson discuss with Garry White the ways in which the green revolution is gathering pace. Listen here.

GameStop

US Treasury Secretary Janet Yellen vowed to protect investors but said financial market regulators needed to fully understand the recent trading frenzy involving GameStop and other retail stocks such as AMC before taking any action.

A tug of war between investors from online message board Reddit and hedge funds has been sending shares soaring. Hedge funds have taken out large short positions in the company, but an army of Reddit investors have been buying the shares in a concerted attack to make hedge funds lose money. Some on the message boards framed it as a millennial attack on ‘boomer’ money, redistributing wealth from the rich.

This week, silver was the new focus of the retail warriors. There was no anti-establishment argument though. Belief in the metal is based on its use in outputs such as solar panels that are poised for growth was the driver on the message boards but gains in the price of the metal were outsized.

We think such action is no threat to markets – yet. We look at the GameStop issue here.

Technology

Amazon founder Jeff Bezos will step down as chief executive of the e-commerce giant and become its executive chairman. This will give him “time and energy” to focus on his other ventures. He will be replaced by Andy Jassy, who currently leads Amazon's cloud computing business. The change will take place in the second half of 2021.

Energy

BP posted its first annual loss in a decade. The oil major reported an underlying loss, after the pandemic cut demand for transport fuels, and caused oil prices on the global market to tumble. BP wrote off the value of its oil and gas assets by a total of $6.5bn last year after slashing its expectations for oil prices over the long-term. It also cut its global workforce by 10,000 and reduced its shareholder dividend for the first time since the Deepwater Horizon disaster.

Write downs also resulted in Royal Dutch Shell reporting a loss for last year but management raised its dividend, which was also rebased last year.

Brent crude futures rose 6.3% over the week, to trade at about $59.40 a barrel by mid-session on Friday.

Retail

The new economy is replacing the old. Asos shares rose after it bought four brands from Sir Philip Green’s collapsed Arcadia Group. The online fashion group will buy the Topshop, Topman, HIIT and Miss Selfridge for about £300m. The group is yet to clarify what will happen with the physical stores.

Shares in French Connection soared after the struggling fashion chain said it had received takeover approaches from two groups. The retailer, which has posted losses for most years in the past decade, said the talks were at an early stage.

JD Sports raised £464.2m through an equity placing, which management said will support expansion plans and help it capitalise on acquisition opportunities.

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