Please see below Daily Investment Bulletin received from Brooks MacDonald earlier today. The update provides market analysis and refers to developments in US politics and the Oxford/Astrazeneca vaccine roll-out.
What has happened
The two seats in the Georgia run-off elections look to be tipping in favour of the Democrats which will have wide ranging implications for the first two years of President-Elect Biden’s Administration. Markets were quick to interpret this with US index futures losing ground and Treasury yields rising.
Vaccine race hots up
We saw a swathe of forward-looking PMI data yesterday from across the world, much of this is pointing to more optimism ahead, but that optimism is largely focused on hopes around the vaccine. As the Oxford/Astrazeneca vaccine begins to be rolled out across the UK, the government announced that 1.3 million people had now been vaccinated and around 23% of those over 80. The wider the roll-out becomes the more political choices governments will have as immunity for those most at risk of hospitalisation or death will give hospitals capacity for any surges amongst less-at-risk populations.
Georgia run-off
Whilst there were concerns that we wouldn’t see a result for several days, with 98% of the vote counted it looks likely that both Democrat candidates will with their races. This brings the Senate to a 50-50 tie but Vice President-elect Harris will have the deciding vote and therefore will be able to edge a vote over the line should all Senators vote along party lines. This would give far more legislative options to President-elect Biden but legislation would need to be unanimously supported by Democrat Senators to pass so there will still be some consensus building required to pass laws. All short-term attention will be on US Fiscal Stimulus with, if the polls are confirmed, a larger package now on the table for Q1 2021 possibly including an infrastructure package alongside to provide a further boost. Of course the sting in the tail could be tax rises or increased regulation around healthcare or big technology, but the wafer thin working majority will moderate any of the more ambitious Democrat policies. With expectations of nearer term stimulus, the market expects the Federal Reserve to need to do marginally less in terms of monetary policy and as a result the 10 year US Treasury hit 1% for the first time in more than 9 months.
What does Brooks Macdonald think
Whilst the Senate looks likely to be split 50/50 with VP-Elect Harris’s vote tipping the balance, such a narrow working majority will inevitably reduce the risk of any highly divisive legislation passing the Upper Chamber. There is also the issue of the filibuster which, unless reformed, can effectively block legislation unless there are 60 Senators in favour of moving the bill along.
We will continue to publish news and market analysis throughout the third and hopefully, final, national UK lockdown. Please check in again with us shortly.
Take care.
Chloe
06/01/2021