Please see below the latest ‘Markets in a Minute’ update from Brewin Dolphin – received last night – 24/11/2020.
Brewin Dolphin – Markets in a Minute
Equity markets have been mixed over the past week as positive sentiment surrounding vaccine news gave way to worries about the near-term economic impact of the pandemic and associated lockdowns.
Brexit news has also been mixed, with reports of progress countered by reiterations of sticking points around fishing and state aid. There is a deadline of this week to strike a deal but it may well be pushed back. In the US, President-elect Biden has now been given the go-ahead to begin the transition process, as President Trump’s legal efforts to get the election result overturned all appear to be failing.
Last week’s markets performance*
- FTSE100: +0.55%
- S&P500: -0.77%
- Dow: -0.73%
- Nasdaq: +0.21%
- Dax: +0.46%
- Hang Seng: +1.12%
- Shanghai Composite: +2.04%
- Nikkei: +0.55%
*Data for week to close of business on Friday 20 November.
Stocks rally at start of week
Global markets largely rose yesterday after more positive vaccine news, although stocks were mixed in the UK thanks in part to a stronger pound. The FTSE100 closed down 0.28% at 6,333.84 as the pound rose on Brexit hopes, while the more domestically focused FTSE250 rose by 0.39% to 19,582.35. Sterling gained 0.17% against the dollar, rising to $1.3298, and by 0.37% against the euro to €1.1242.
In Europe, shares were up in early trade but faded towards the close, with the pan-European Stoxx 600 closing down 0.2% and the Cac-40 closing 0.08% lower. In the US, the tech-heavy Nasdaq closed up by 0.22% but the more ‘old economy’ Dow gained 1.12%.
Overall trends in the markets showed a continued outperformance of stocks that are expected to benefit from life returning to normal, such as energy, financial stocks and industrial companies, while the tech sector lagged, since it has benefitted so much from the lockdowns.
Economic data shows slowdown in UK, eurozone
Closely watched surveys of business activity suggested the UK was slowing rapidly in November while the US was performing better. The flash Purchasing Managers’ Index for the UK services sector, which covers leisure and hospitality, fell to a reading of 45.8 in November, its lowest for six months, as the second lockdown took hold. Any reading below 50 suggests business activity is falling compared to the previous month.
The manufacturing sector index was stronger, rising to 55.2 from October’s 53.7, as many firms build up stock ahead of the Brexit deadline.
However, the eurozone saw an even worse reading on its services sector, which hit a level of 41.3, lower than expected due to the severe lockdowns imposed across the continent which has forced the closure of so much of its services economy.
The near-term outlook is likely to remain weak but the stock market may look beyond the short-term data and focus on the vaccine news, which looks increasingly likely to bring a sense of normality back next year.
Source: Refinitiv Datastream, Brewin Dolphin Nov 2020
Vaccine upside
The better news for the pound is the continued positive vaccine news. Last Monday we had confirmation that both mRNA-based vaccines (Pfizer and Moderna) have similarly high levels of efficacy of 94%-95%. Some more details from Pfizer and BioNTech later in the week provided further encouragement in that the jab shows 94% efficacy in those aged 65 and over.
The Oxford/AstraZeneca team yesterday announced initial findings that showed it prevented an average of 70% of infections. Given the very high bar set by the two mRNA vaccines, it might be natural to feel a little disappointed at the 70% efficacy level, but it is important to note that a smaller cohort of the trial produced results showing 90% efficacy if the vaccine was administered as a half dose, followed by a full dose a month later. AstraZeneca also indicated that the two-dose regime was successful in preventing asymptomatic infections, although this needs to be validated with more results.
AstraZeneca is now looking to adjust its phase three trials that are still under way to incorporate these different dosing regimes, and hopefully prove a higher efficacy rate.
If its efficacy can be improved through the dosage techniques, then it can be a very positive addition to the two mRNA vaccines. Unlike the Pfizer and Moderna jabs, which have to be stored in ultra-cold conditions, the AstraZeneca jab can be kept in a normal fridge and is far cheaper than the two other vaccinations. The trial data has been welcomed by medical experts, who remind us that many were expecting an efficacy rate of around 50%-60% for the first round of vaccinations. All have exceeded these expectations.
Brexit latest
Although there is supposed to be a deal done by this week, as with most EU deadlines, this seems to be a rolling one. Back in June, a deal had to be done by the summer, then it had to be done by mid-October to allow time for the treaty to be translated into all the bloc’s official languages and scrutinized by the European Parliament. Now Michel Barnier is understood to be briefing that it could even get done with an agreement being reached in December. The anticipated date for a European Parliament rubber stamping vote is 16th December but nobody will be surprised if it drifts to just before New Year.
If a deal is not reached by the 1st January then the UK and EU will trade on WTO terms. That would mean tariffs, quotas and an effective border with the EU. The UK has granted an exemption to incoming goods during the first half of 2021 so incoming goods should suffer less disruption, but the EU has not reciprocated.
The two sides are still trying to bridge their differences over fishing, the level playing field for businesses and the governance of a potential trade agreement. Because of its size, the EU has the leverage. It wouldn’t be surprising to see Boris offer up a last-minute concession, with the EU granting a smaller concession that allows him to spin it up into a win.
This week’s article from Brewin Dolphin focuses on the economic data that is starting to show a slowdown in business activity across the UK and eurozone, with updates on the market reaction to more positive vaccine news and the latest news on Brexit.
Please continue to check back for our regular blog posts and updates.
Charlotte Ennis
25/11/2020