Given the lack of any significant economic data releases so far this week, global equity markets have been fairly muted and remain hostage to the tug of war between vaccine optimism and further stimulus versus the growing number of coronavirus cases that is still being fought.
Most of California went under new strict lockdowns last week (and as we have previously stated not only is California the largest economy in the US, accounting for around 15% of the country’s GDP, it’s economy is actually bigger than that of the UK), and unfortunately, Andrew Cuomo, the Governor of New York, stated that New York was also currently heading towards a second full shutdown if cases and hospitalisations continue to rise – and New York is the third largest economy in the US (around the same size as the Canadian economy). Additionally, Germany starts its hard lockdown today (Wednesday 16 December 2020) and London moves into tier 3 and tougher restrictions.
As such there will obviously be some short-term headwinds for economic activity (and therefore some messy economic data at the start of 2021) as a result of the latest resurgence in coronavirus cases.
However, while we appreciate that this is disappointing, it is important to look past this as we don’t believe it is a match for the prospect of a post-vaccine world in 2021 given Pfizer’s vaccine roll out is now underway and Moderna’s vaccine approval is expected any day – and the widespread availability of a number of vaccines will allow the global economy to fully reopen in 2021 and more importantly, stay open.
As a consequence, it is important to maintain a long-term perspective and look forward to upside potential for global equity markets, as we don’t believe this return to normalcy has yet to be fully reflected in equity prices.
Furthermore, more monetary easing can’t be ruled out (which will be positive for equity markets) as three of the major central banks have policy meetings this week: the Fed meet later today, while the BoE meet tomorrow (Thursday 17 December 2020) and the BoJ on Friday (18 December 2020) – which we will update you about in our next weekly market commentary.
Investment Management Team