Week ending 8th January 2021.

Oh, what a week!

While it was a historically depressing week given the scenes of protesters storming Capitol Hill in Washington, coupled with the surging coronavirus cases (resulting in tighter lockdown restrictions) around the globe; at the same time it was a historically upbeat week for equity markets – and in particular the FTSE-100 which had its best start to a new year on record, with a gain of 6.39%.

The reason why equity markets were able to ignore the protest and the current trajectory for coronavirus infections and deaths was due to the Senate run-off elections in the state of Georgia (please see here).

The Democrats won both of the two seats – and therefore flipped control of the Senate, meaning that the Democrats now control both houses of Congress and the White House.  While a unified (Democrat) government has both positives and negatives, of most importance in the here and now is the fact that we are highly likely to see a massive fiscal stimulus package to help the US economy. This is a big positive – especially for the UK equity market as Joe Biden is proposing to spend nearly $2tr on US infrastructure programs which will require tons of industrial metals such as iron ore and copper (and commodity stocks – i.e. miners and oil & gas) which also account for over 20% of the FTSE-100 index, hence why the UK market outperformed its global peers.

In fact, this coupled with the widespread vaccine distribution and an expected economic recovery in 2021, mean that the stars may be finally starting to align for the FTSE-100.

Also helping equity market sentiment this week was positive economic data.

After the stunning US ISM (Institute for Supply Management) data we covered in the Mid-Week Market Update (please see here), the US ISM services index also came in much stronger than consensus estimates of 54.5, with a reading of 57.2 (up from 55.9 in November).  November’s factory orders also beat estimates of 0.7% by growing 1%, while October’s growth was also revised upwards from 1% to 1.3%.

Although US employment data showed that 140,000 jobs had been lost during December, October & November’s job gains were revised up by a total of 135,000 – which meant the unemployment rate was unchanged at 6.7%.

Additionally, minutes from the last US Fed monetary policy meeting showed that policymakers don’t currently see any inflationary risks.  This, coupled with the fact that the unemployment rate is nearly double of that before the coronavirus outbreak suggests to us that even with additional fiscal stimulus from Joe Biden, we are a long way away from the Fed changing its accommodative monetary policies (which is also very positive for global equity markets).

Looking ahead to the coming week, we have lots of US data including:  CPI; the Fed’s Beige Book; retail sales; the Empire State Manufacturing Survey; industrial production; the University of Michigan Consumer Sentiment index; and of course the weekly US jobless claims.

Elsewhere, we have UK industrial and manufacturing production; UK GDP for November; Chinese import/export and trade balance data; and Eurozone industrial production.

Investment Management Team