Market Commentary 26th January 2021 from Charlie Hancock

Concerns around the economic impact of lockdown restrictions appeared to hinder sentiment on UK equities. Prime Minister Boris Johnson stated that it was too early to say if restrictions would end in the spring, prompting headlines suggesting that the current restrictions could remain in place into the summer months.

A Purchasing Managers Index (PMI) survey for January added to these concerns, with readings for both the services and manufacturing sectors hitting an 8-month low. The survey results indicate that current lockdown restrictions are having an impact across the UK economy.

Eurozone economic data released last week suggested that coronavirus related restrictions across the continent are hindering business activity. A PMI survey for the services sector indicated that activity contracted at a faster pace than during the final months of 2020. The survey for the manufacturing sector indicated that activity continued to expand, but at the slowest pace since June 2020.

A peaceful inauguration ceremony for President Biden contributed to the positive sentiment last week. Investors also seemed encouraged by the prospect of further fiscal stimulus, as well as Biden pledging to ramp up vaccination efforts. January PMI surveys released for the US were better than expected, with both manufacturing and services seeing activity increase at a faster pace than during December.

Large cap technology stocks outperformed last week, aided by better than expected earnings results for Netflix Inc. The streaming provider saw their share price rise by 13.49% across the week after stating that it will no longer require debt to finance expansion. Apple, Facebook and Alphabet (Google) all performed strongly, with investors betting on strong upcoming earnings reports from the tech giants.

Economic data for China continued to be very strong, with official data showing GDP growth of 2.3% for 2020. Year-on-year growth of 6.5% during the final quarter of the year provided more evidence of China’s economic growth returning to its pre pandemic trend. Technology/internet stocks in China rallied last week, with the re-appearance of Alibaba founder Jack Ma boosting sentiment. Alibaba’s share price rose by 6.25% across the week, Tencent gained 7.90% and JD.com climbed by 8.13%.

The Bank of England governor, Andrew Bailey, stated during a conference that he is expecting a strong economic recovery later this year due to the vaccination programme. The comments may have reduced any expectation of negative interest rates, helping Gilt yields to rise across the week.

Despite worse than expected economic data for the Eurozone being released last week, investors were comfortable ditching German government debt in favour of riskier assets.

Demand for US treasuries appeared relatively unchanged, with better than expected economic data helping yields to remain stable.

GBP / EUR – Current 1.1247 Previous 1.1238

The Pound rose by 0.71% against the US Dollar and was broadly flat against the Euro with a marginal gain of 0.08%. Currency traders were positive on sterling, brushing off speculation of a prolonged national lockdown.