Last Week in the City: UK economy decimated in 2020

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 12 February 2021.

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Although the emergence of new variants of Covid-19 remains a concern for markets, falling infection rates in developed economies alongside global vaccination programmes kept equity indices close to record highs. Joe Biden’s administration kept the pressure on Congress over his plan for $1.9 trillion in stimulus spending which helped push the oil price over $61 a barrel for the first time since the early days of the pandemic. Government data revealed the UK economy shrank 9.9% over the course of 2020.

The FTSE 100 rose 0.4% over the week, with the more UK-focused FTSE 250 up 1% by the middle of Friday’s trading session.

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Inside the mind of our Investment Manager, Charlotte Lambeth: When markets are moving rapidly and emotions are high, Charlotte explains how clear communication and planning result in the best decisions for each client. Find out how investors deal with FOMO – the fear of missing out – here.

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Economics

The UK economy shrank by a record 9.9% last year as pandemic restrictions hit output. However, the economy looks set to avoid a double-dip recession after growth picked up at the end of the year. In December, the economy grew by 1.2%, after shrinking by 2.3% in November, as some restrictions eased.

Despite the equity market exuberance as vaccines boost recovery hopes, the spread of Covid-19 is still having a significant economic impact – and will have for some time to come. We look at the rising cost to economies here.

Geopolitics

Donald Trump's second Impeachment trial started in the US Senate. Democrats spent two days arguing for his impeachment, including video footage of the violence, arguing that acquittal could see a repeat of the attack on Congress. Mr Trump’s defence lawyers are set to present evidence in the US Senate, denying charges he incited insurrection in the Capitol riots of 6 January. Acquittal is the likely verdict however, as most Republicans are expected to vote against the impeachment.

Chinese telecoms giant Huawei is taking HSBC to court in the UK as part of its attempt to prevent the extradition of its chief financial officer from Canada to the US. Meng Wanzhou was arrested in Canada on a US request over claims she misled HSBC in a 2013 meeting. Huawei now hopes to gain access to HSBC documents that could help it undermine the US case for her extradition.

BBC World News was banned from airing in China. The announcement came one week after UK regulator Ofcom said it had withdrawn a license for China Global Television Network, or CGTN, to broadcast in the United Kingdom. China's NRTA said that BBC World News had broadcast reports on China that "infringed the principles of truthfulness and impartiality in journalism."

Getting to ‘net-zero’ emissions: A lively market in carbon offsets is developing, as the need for more renewable power grows substantially. We look at the ways carbon can be cut here.

Despite the upheaval and disagreements between Italy and Germany, we think the Italians are likely to stay in the euro. We look at political issues here.

Cryptocurrency

Bitcoin hit record highs after Elon Musk's car company Tesla said it had bought about $1.5bn of the cryptocurrency. However, there was some criticism about a green car firm investing in such an energy-intensive currency. If Bitcoin were a country, it would be in the Top 30 energy users worldwide, consuming more electricity than Argentina.

Janet Yellen warned of an “explosion of risk” from criminals using digital technologies. The Covid-19 pandemic has made the problem worse, because it has moved more crime online, the US Treasury Secretary said. Ms Yellen told a US Treasury roundtable that cryptocurrencies held promise but were too often used for crime. However, she said new financial technologies could help fight crime and also reduce inequality.

Charles Stanley believes investors should be wary of Bitcoin and other cryptocurrencies. We do not consider them an ‘investable asset’ and we wouldn’t include digital coins in any of our portfolios. We explain why here.

Space

After causing a storm in digital currency markets, billionaire Elon Musk also made his mark in the heavens too. His private group SpaceX has launched 60 more internet-beaming satellites into space, growing the ‘Starlink’ internet constellation to include about 1,000 units. This means SpaceX now owns about one third of all the active satellites in space. Garry White looks at the space race to develop and own 5G infrastructure here.

Technology

Social media group Twitter posted record revenues for the last quarter of 2020, capping off what its chief executive said was "an extraordinary year" for the platform. Revenue grew 28% year-on-year. In January, Twitter banned Donald Trump from the platform – a move analysts felt could now start to have an impact. "We're a platform that is obviously much larger than any one topic or any one account," founder Jack Dorsey stated.

During the Covid-19 crisis, robots have been used for monitoring patients, disinfecting medical facilities and for delivering medicines. Garry White looks at the robot’s march into mass production here.

Energy

The UK Supreme Court ruled that a group of 42,500 Nigerian farmers and fishermen can sue oil giant Royal Dutch Shell for numerous oil spills in the Niger Delta. Judges found that the company had a common law duty of care for the activities of its Nigeria-based subsidiary.

Oil prices dropped for a second day on Friday, pulling further back from a one-year high hit earlier in the week. Opec again lowered its oil demand forecast and the International Energy Agency said the market remained oversupplied. Nevertheless, recovery hopes meant Brent crude futures rose 2.4% over the week, to trade at about $61 a barrel by mid-session on Friday.

Transport

British holiday company Jet2 said it has raised £422m through a new share issue to bolster the company’s finances, amid sustained restricted travel. The money raised was equal to 20% of its share capital prior to the fundraising.

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