Market Commentary 11th January 2021 from Charlie Hancock

During the first week of the year, it appeared that investors were optimistic on UK equities following agreement on a trade deal between the UK and the EU. The large cap FTSE 100 index was boosted by strong performance in energy stocks, with Royal Dutch Shell seeing a 12.55% rise across the week and BP PLC rallying by 17.23%.

The FTSE 250 saw more subdued gains, with sentiment on mid-cap stocks seemingly hampered by Boris Johnson announcing a new national lockdown. Chancellor Rishi Sunak announced a new £4.6 billion package to help support businesses in the retail, hospitality and leisure sectors.

Investors in European equities shrugged off coronavirus related concerns last week. Germany extended their national lockdown until the end of January and banned all non-essential travel in areas with high infection rates.

Economic data released during the week surprised to the upside. The Eurozone unemployment rate declined unexpectedly and data showed that the German manufacturing sector grew by more than expected during November. In addition, retail sales and exports were both better than anticipated, suggesting that Germany avoided an economic downturn during the final months of 2020.

In the early part of the week, large cap Technology companies struggled as investors considered the possibility of increased regulation and higher taxes from the ‘blue wave’ in the US congress. These fears dissipated as the week progressed, with the NASDAQ index recovering from a heavy decline on Wednesday. Financial stocks performed well, with rising Treasury yields boosting sentiment on the sector. The Dow Jones Regional Banks index gained 8.53% across the week.

President elect Joe Biden detailed the need for further fiscal stimulus measures via a televised address, stating that further stimulus cheques are necessary until the pandemic is over. The prospect of another multi-trillion dollar stimulus bill boosted sentiment towards the end of the week. Worse than expected unemployment data also provided some justification for further stimulus measures.

It was a mixed week for Chinese equities, with headlines on the ongoing Alibaba regulatory investigation appearing to impact sentiment. Investors were provided with some positive news on Monday evening, after the New York Stock Exchange stated they no longer intend to force some Chinese telecom companies to de-list from US exchanges. The executive order from President Trump was reversed after further consideration from regulatory bodies in the US.

Japanese equities rose despite a surge in coronavirus cases and the prospect of this summer’s Olympic games being cancelled. Prime Minister Suga told Japanese citizens that the government was considering declaring a state of emergency to curb the rise in infections.

Investors reacted to the prospect of further stimulus, which became more likely following a win for the Democratic Party candidates in the Georgia senate elections. This fuelled a risk on mood, which prompted investors to sell treasuries in favour of equities. Investors were also pricing in the potential for a large stimulus bill to prompt a rise in inflation.

GBP / EUR – Current 1.1094 Previous 1.1185

The Pound weakened against both the US Dollar and the Euro last week, falling by 0.75% and 0.81% respectively. Both the greenback and the Eurozone currency displayed strength against most currencies last week.

An unexpected outcome from the OPEC+ meeting last week drove prices sharply higher. The official OPEC press release stated that members of the group had reached agreement on a production increase, however, Saudi Arabia subsequently made a surprise announcement, stating that they will cut supply by 1 million barrels per day in February and March.