Market Commentary 7th December 2020 from Charlie Hancock

Posted by melaniebond

 

Market Commentary 7th December 2020
Equity Indices
UK
UK equity indices posted strong gains last week, outperforming their global counterparts. The FTSE 100 gained 2.87% and the FTSE 250 index rallied by 3.70%, with positive sentiment on Brexit negotiations providing a boost for the mid cap index.

For most of the week, headlines regarding UK-EU negotiations were encouraging, with hopes that intensified talks would result in progress on key issues such as fishing rights and rules regarding state aid for companies. The positive sentiment waned slightly on Thursday, after France said that they could veto a UK-EU trade deal which does not suit French interests.

Investors also appeared encouraged by UK regulators approving the Pfizer-BioNTech Covid-19 vaccine for emergency use. The UK government said it would begin roll out of the vaccine in the coming days.

Europe
Performance in European markets was mixed last week, resulting in the broad FTSE All World Index – Europe ex UK posting a gain of 1.15%. Germany’s DAX index declined by 0.28%.

Sentiment in Europe appeared to be hit by disagreements regarding the €750 billion pandemic recovery fund. Poland and Hungary have attempted to push back against the EU’s budget plans, resulting in the European Commission stating that they are consulting with lawyers to find a way of proceeding despite the objections. The €750 billion package has been viewed as a significant factor the Eurozone’s economic recovery and developments at this month’s EU leaders’ summit are therefore likely to be closed watched.

Germany confirmed on Wednesday that current lockdown restrictions would be extended until the 10th January. With infection numbers climbing across the week, Italy announced that travel across regional borders within the country will be banned during the Christmas period.

US
US equity indices were in positive territory last week, with the technology orientated NASDAQ 100 index leading with a gain of 2.20%. The S&P 500 index climbed by 1.67% and the Dow Jones Industrial Average gained 1.03%.

Whilst US regulators are yet to approve a Covid-19 vaccine, sentiment in the US was lifted by news of the UK approving the Pfizer-BioNTech vaccine. Optimism around the vaccine was impacted by Pfizer stating on Thursday that they have experienced some supply chain problems.

Investors also appeared to be encouraged by a group of senators from both the Republican and Democratic parties proposing a $908 billion fiscal stimulus package. President-elect Joe Biden urged congress to pass the bill, stating that further economic relief is needed until the pandemic is over.

US economic data released last week was mixed. Payroll data showing that the US economy added 245,000 new jobs during November was significantly below economist expectations, whilst Purchasing Managers’ Index (PMI) surveys indicated improving sentiment in both the services and manufacturing sectors.

Asia
The broad FTSE All World Index – Asia Pacific gained 0.59% last week. China’s Shanghai Composite index climbed by 1.06% and the Japanese Nikkei 225 index rose by 0.40%.

November’s PMI data for China was stronger than expected, with the official manufacturing index rising for the 9 month in a row. Sentiment on China was hampered by political tensions last week, after the US congress approved a legislative bill which could force Chinese companies listed on US stock exchanges to delist if they fail to adhere with US accounting rules. If the new laws are implemented, Chinese companies would have to comply within three years.

A senior member of the Bank of Japan (BOJ) policy committee, Hitoshi Suzuki, suggested that the bank will continue its programme of equity purchases during a speech last Thursday. Despite the BOJ now being the biggest holder of Japanese stocks, Suzuki stated that monetary easing, including the purchase of Exchange Traded Funds (ETFs), is expected to be prolonged further due to the impact of the Covid-19 pandemic.

Bond Yields
UK
The 10 Year Gilt yield climbed from 0.29% to 0.35% last week, reflecting the optimism mood amongst investors.

Gilt yields were lifted by news of the UK regulator approving the Pfizer-BioNTech vaccine, together with positive comments from UK and EU negotiators.

Europe
The 10-Year German Bund yield moved from -0.59% to -0.54% last week.

The rise in European bond yields was seemingly hindered by expectations for further monetary stimulus from the European Central Bank (ECB) which would be aimed at keeping borrowing costs low. Data released last week showed that Eurozone inflation during November was negative for the fourth month in a row, which is likely to put pressure on ECB policymakers ahead of their December meeting.

US
The 10-Year Treasury yield finished the week just below the closely watched 1% mark at 0.97%. After starting the week at 0.84%, the 10-Year yield was lifted by positive vaccine news and apparent progress on a US fiscal stimulus package.
Currency
GBP / USD – Current 1.3441 Previous 1.3311

GBP / EUR – Current 1.1064 Previous 1.1127

The Pound gained 0.98% against the US Dollar last week, but slipped by 0.57% against the Euro. Movements in Sterling last week were largely driven by news regarding post Brexit trade deal negotiations between the UK and the EU.

Commodities
Gold
The Gold spot price rose by 2.86% last week to reach $1,838.86 per ounce. The precious metal was seemingly boosted by news of new stimulus package proposals being put forward in the US senate.
Oil
Oil prices continued to climb last week, reaching a 9 month high. The Brent crude spot price rose by 2.22% to reach $49.25 per barrel after the OPEC+ group of oil producing nations agreed to implement steady production increases. The increases will be decided on a month by month basis to avoid over-supplying the market during the coming months.