Last Week in the City: Markets anticipate a better 2021

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 18 December 2020.

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Garry White

Global equities hit record highs again as Covid-19 vaccines were rolled out and optimism grew that a stimulus deal could be agreed in the US. The MSCI World Index, which tracks stocks across the developed world, reached a new peak on Thursday. However, gains were tempered on Friday as the Covid-19 infection continued to spread in Europe and the US.

The FTSE 100 rose 0.4% over the week, with the more UK-focused FTSE 250 up 3.0% by the middle of Friday’s trading session, despite the failure of the European Union and Britain to agree a post-transition period Brexit deal.

Asset allocation: Charles Stanley’s Investment Strategy Committee met this week – you can read a summary of its conclusions here.

***************************

The rise of the social entrepreneurs: Social entrepreneurs start businesses that are committed to dedicating some – or all – of their profits to a cause. Discover more about this growing sector here.

***************************

Covid-19

England tightened its response to the Covid-19 pandemic. New restrictions mean that 68% of England's population – 38 million people – will be living in tier three from the weekend. Some 30% of the population will be in tier two, while just 2% will be in tier one, the lowest level. Some 140,000 people have now received the vaccine developed by Pfizer/BioNTech.

UK Chancellor Rishi Sunak extended the furlough scheme for one month until the end of April next year. He said the move would provide "certainty for millions of jobs and businesses". It means the government will continue to pay up to 80% of the wages of workers who have been furloughed. Mr Sunak also confirmed he will deliver his next annual UK budget on 3 March.

The infection crisis is still acute in the US. Death in the country caused by Covid-19 soared to another a daily record and hospitalisations rose to record heights for a 19th consecutive day. However, there was progress on the vaccination front. Hospitals across the US ramped up their vaccination programme using the Pfizer/BioNTech inoculation, which was cleared by the Food and Drug Administration (FDA) last week. The FDA is also said to be close to approving a second Covid-19 jab for use. The regulator said its early analysis of the Moderna vaccine confirmed its 95% efficacy. FDA staff endorsed the vaccine as safe and effective.

Markets today are confident that 2021 will be a year of substantial recovery. But economic events will be largely determined by the roll-out of vaccines – and the gradual fall off in cases and deaths. After a torrid 2020, we consider what lies in store in 2021 here.

There are hopes that Washington can reach agreement on a new stimulus package, with optimism that a political deal was close providing support for equity markets. In vote re-runs for two Senate seats in Georgia, Republican strategy has now pivoted away from the Trump agenda to woo floating Democrats. Is a deal on a stimulus bill now more likely? We look at the changing politics on Capitol Hill here.

All European Union (EU) member states plan to start vaccinations against Covid-19 from 27 December, according to German Health Minister Jens Spahn. The EU regulator, the European Medicines Agency, is expected to approve the vaccine, with an announcement scheduled for 21 December.

Japanese capital Tokyo raised its Covid-19 alert level to the highest of four stages, as the number of new cases spiked to a record daily high. The city of 9.3 million people is experiencing acute strains on its medical system.

The Japanese government unveiled a fresh $708bn stimulus package to help boost the country’s recovery from the pandemic, targeting investment in green technology and digital innovation.

Economics

The Bank of England kept interest rates on hold at 0.1% and its bond-buying programme fixed at £895bn. The central bank said the arrival of vaccines is likely to boost the economy next year but warned new restrictions introduced this week in England will hit growth. The Bank expanded its quantitative easing programme by £150bn in November.

Store closures enforced by Covid-19 social-distancing rules hit UK retail sales in November. Sales fell by 3.8% last month, ending a six-month run of rising trade. Clothing store sales saw a sharp fall from the previous month, while food stores and household goods stores were the only sectors that grew. Online sales represented 31.4% of the total, the highest proportion since June. Internet retailers’ market shares rose by nearly 75% in the twelve months to the end of November, the Office for National Statistics data showed.

US economic prospects have improved since September, despite the recent surge in Covid-19 infections, the Federal Reserve said after its monthly interest rate meeting. No changes to policy were announced. The central bank forecast growth of about 4.2% next year, better than previously announced. However, chair Jerome Powell cautioned that the coming months would be “particularly challenging” before a strong rebound in the second half of 2021 after vaccines had been distributed. The Fed also said that it will continue its bond-buying stimulus “until substantial further progress has been made” toward its goals of full employment and 2% inflation. This statement was aimed at reassuring markets concerned about a lack of progress in talks on Capitol Hill.

The US said that Switzerland and Vietnam were "currency manipulators". It accused the countries of intervening to limit the rise of their currencies against the dollar. US officials said Vietnam wanted to keep the cost of its exports low, while Switzerland's designation was due in part to its response to financial turmoil from the pandemic. Switzerland rejected the label and said it remained “willing to intervene more strongly” in the market.

Brexit

Britain and the EU are still talking about a potential trade deal ahead of the end of the Brexit transition period on 31 December. Both sides warned that they remained far apart on several issues – becoming more likely they would fail to reach an agreement. Fisheries appears to be a major stumbling block, as well as state subsidies, the level playing field – common rules and standards that prevent companies from gaining an unfair competitive advantage – and the legal enforcement of any deal.

Trump administration trade representative Robert Lighthizer said the US and UK may be able to reach a free-trade agreement relatively quickly – but the British government needed to compromise on issues such as food safety. Although the US election hit the timing of transatlantic talks, Mr Lighthizer believes there is still time for negotiators to complete a deal before President-elect Joe Biden’s inauguration on 20 January. “It will require compromises on both sides,” he noted. US negotiators want the UK to accept beef produced with artificial growth hormones and poultry sterilised using a chlorine wash. Mr Lighthizer said US farmers want more access to the UK and that meant accepting American standards to secure a trade deal. It is unclear whether Mr Biden seeks a quick compromise, having previously warned he would not support a trade deal if Brexit compromised the 1998 Good Friday Agreement.

Geopolitics

Russian online spies appear to have been hacking the US government for months. US federal agencies were attacked in a way that may have let a foreign power monitor government messages in key areas of government. These organisations included the Treasury and commerce department. And all federal civilian agencies have been told to disconnect from SolarWinds Orion, a computer network tool being exploited by "malicious actors". FireEye, a company that provides US government cyber-security, said it identified the problem after its own hacking tools were stolen last week. The UK's National Cyber Security Centre (NCSC) said it was working closely with FireEye to determine if a similar cyberattack had occurred in Britain.

China's foreign ministry urged the United States to stop its "unjustified" crackdown on Chinese companies, after reports confirmed Washington’s plans to add dozens of Chinese companies to a trade blacklist. China will continue to take necessary measures to ensure its companies' legitimate rights and interests, ministry spokesman Wang Wenbin said. Garry White looks at what is driving these attacks here.

Australia plans challenge China's tariff on its barley exports in an appeal to the World Trade Organization (WTO). It is Canberra’s first defensive action in response to Chinese sanctions on goods such as dairy, meat and wine – introduced as political tensions worsen. It appears that Beijing holds most of the cards. China buys more than a third of Australian exports – but could its reliance on iron ore from Western Australia be used as leverage? Garry White looks at Canberra’s options here.

IPOs

Despite the uncertain backdrop caused by Brexit and the Covid-19 pandemic, the London Stock Exchange (LSE) kept the top spot as Europe’s most active IPO market. LSE proceeds accounted for almost a third of total European proceeds in 2020 so far. There have been 26 London IPOs this year, in line with the 27 businesses that came to market in the equivalent period of last year. There are some predictions that the first half of 2021 will see the number of flotations surge, as improving condition release pent-up demand.  

Technology

Moves against global technology companies were made by US and European authorities, but an internecine conflict between two of the sectors biggest names took a turn for the worse.

A battle between technology behemoths Facebook and Apple escalated. Earlier this year, iPhone group Apple unveiled its plan to ask users if they want their data to be shared for targeted, personalised advertising when an app is opened. The changes, made in the name of privacy, could cut the money Facebook earned through its advertising network by half. Facebook ran a newspaper advertising campaign, published a new website and ran blog posts outlining its arguments against Apple’s privacy change. Positioning itself as a small business champion Facebook claimed the move “threatens the personalised ads that millions of small businesses rely on to find and reach customers.” The changes are expected to dramatically impact the ability of advertisers to target ads since people are unlikely to opt in when the option is put front and centre. Facebook accuses Apple of an attempt to move the free, advertising-supported internet into paid apps and services – where Apple takes a 30% cut through its App Store.

Europe continued with its moves to regulate large American technology companies such as Facebook, Amazon and Alphabet-owned Google. They now face annual checks on their procedures for tackling illegal and harmful content under new rules unveiled by the European Commission. It also plans new restrictions on the use of customers' data, and to prevent the companies ranking their own services above competitors' in search results and app stores. Large fines and break-ups are threatened for non-compliance. Garry White explains why digital sovereignty is moving up the agenda globally here.

US authorities also aimed their guns at Alphabet, which faces its third government antitrust lawsuit in less than two months. A bipartisan coalition of state attorneys general accused its Google search engine of illegally maintaining a monopoly in general search and search advertising – preserving its position using anticompetitive conduct and contracts.

Energy

Oil prices slid from nine-month highs on Friday, as rising cases of Covid-19 raised near-term demand concerns. A strengthening US dollar also had a negative impact. The dollar typically has an inverse relationship with commodity prices because they are priced in the US currency. When the dollar rises, these commodities become more expensive in other currencies. Brent crude futures were up 2.9% over the week by mid-session on Friday, trading at about $51.40 a barrel.

Travel

Airlines operating in the UK will face an investigation into whether consumer laws were broken by their failure to offer cash refunds to passengers during the Covid-19 crisis so far. The Competition and Markets Authority said complaints ranged from incentives to take vouchers instead of cash and repayment delays following a formal request for a refund.

The crisis continued to take its toll on the travel industry. British Airways, owned by IAG, cancelled services 15 long-haul destinations next year. Flights to cities in North America such as Pittsburgh, Calgary and Charleston were axed, as well as flights to Seoul, Kuala Lumpur and Osaka.

Norwegian Air edged closer to securing its future after shareholders endorsed the airline’s financial rescue plan. Management now face difficult negotiations with creditors as the carrier tries to reduce its near-$8bn of debt and liabilities. The airline obtained creditor protection this month from courts in Norway and Ireland.

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.

More from author

  1. Garry White

    Last Week in the City: A single-shot vaccine approaches

    Date: 15th Jan 2021 12:03pm

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

  2. Garry White

    Trump team rows back on tough China sanctions

    Date: 14th Jan 2021 12:24pm

    The Trump administration has scrapped plans to blacklist Chinese tech giants Alibaba,...

  3. Garry White

    Last Week in the City: Donald finally admits he lost

    Date: 8th Jan 2021 12:35pm

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

Most read articles

  1. Last Week in the City: Markets anticipate a better 2021

    Last Week in the City: A single-shot vaccine approaches

    Date: 15th Jan 2021 12:03pm

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

  2. Last Week in the City: Markets anticipate a better 2021

    Volatile markets reflect fears of reality

    Date: 13th Jan 2021 10:37am

    The gap between the reality of Covid-19-torn economies and equity markets is still gr...

  3. Last Week in the City: Markets anticipate a better 2021

    Last Week in the City: Donald finally admits he lost

    Date: 8th Jan 2021 12:35pm

    Garry White, Chief Investment Commentator, provides a round-up of the market movement...

Investment involves risk. You may get back less than invested.