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Please see investment bulletin below from Brooks Macdonald received this morning – 22/01/2021

Brooks Macdonald Investment Bulletin

What has happened

A tech fuelled rally drove the US index marginally higher yesterday. Interestingly the cyclical stocks, which outperformed at the start of the month are losing some momentum. One of the explanations for this is the disconnect between market expectations around demand, i.e. the oil price and forward looking equities, i.e. oil majors – until expectations of a cyclical rebound is reflected across the board, cyclical equities may have bouts of weakness. That said, the reflation narrative remains alive in fixed income with US inflation expectations picking up yet again yesterday.


Whilst there were no changes to policy levels at the ECB meeting yesterday, investors were left feeling more uncomfortable as the bank stressed the ‘symmetrical’ nature of the pandemic quantitative easing programme. Specifically, this means that if the bank feels that it does not need to use all of the QE budget it will not do so. This is fairly logical and reiterates what was said in the December meeting but the fact there was a new section in the statement to reiterate this, concerned markets. Central bank watchers pore over the specific words in a statement so the inclusion of a full section is a strong emphasis from the ECB. Investors decreased their expectations of monetary policy accommodation as a result which saw the Euro rise against the dollar and sovereign bond yields rise amidst fears that the major buyer of sovereign bonds would be less active in purchases going forwards.

US COVID response

With President Biden’s first full day in office we saw a series of executive orders in relation to vaccine supply chains and vaccine deployment. The President did note however that stimulus was required to change the trajectory of the vaccine rollout, but the administration remains committed to the 100m vaccines in the first 100 days. Dr Fauci, Chief Medical Advisor to the President, welcomed news that Johnson & Johnson’s vaccine expected to have early stage results during the start of February and would have data available for an emergency use review during that month.

What does Brooks Macdonald think

The ECB is in a tough spot as financial markets want to hear that tapering is off the table however more fiscally conservative member states such as Germany, want the pandemic QE programme to slow as the economy recovers. Last year we saw the challenge by the German Constitutional Court over the ECB’s QE programme and the inclusion of a statement around the symmetrical nature of QE is probably principally designed to calm the fiscal hawks amongst member states.

Source: Bloomberg as at 22/01/2021

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Charlotte Ennis