Please see below weekly market commentary from Brooks Macdonald received yesterday afternoon – 04/01/2021
Weekly Market Commentary | COVID-19 restrictions remain in the spotlight as 2021 begins
04 January 2021
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By Edward Park
• Risk sentiment was positive but muted as a Brexit deal and US Fiscal Stimulus both came over the line
• While vaccines improve the prospects for 2021, restrictions look set to tighten in the interim
• Georgia’s runoff elections tomorrow will determine the makeup of the Senate for the next two years
Risk sentiment was positive but muted as a Brexit deal and US Fiscal Stimulus both came over the line
There was a strong sense of Groundhog Day throughout December as the ‘will they won’t they’ pantomime played out over a Brexit deal and US Fiscal Stimulus. Ultimately, both of them were carried over the line but looking at the rather muted market reaction, investors were too exhausted to care once the result was known.
While vaccines improve the prospects for 2021, restrictions look set to tighten in the interim
The brighter prospect for 2021 firmly lies with the vaccines and, in the UK, we now have the Oxford vaccine to add to the arsenal. The Oxford vaccine is important as, while it appears less effective than the Pfizer/Moderna mRNA options, it is cheaper and easier to handle, only requiring storage in a normal fridge. As the UK and other countries look to ramp up their inoculation efforts, the new viral variant has changed the dynamics for restrictions. Since the lockdown in March of 2020, the government has squeezed social activity and the hospitality industry with the intent of leaving room for the economy to stay largely open and schools to continue operating. The current Tier 4 restrictions, similar to Lockdown 2.0 in November, are seen as insufficient to curb the current variant and UK Prime Minister Johnson yesterday warned on the Andrew Marr show that restrictions were likely to get tougher. A return to a March 2020 lockdown will undoubtedly hit Q1 UK GDP, however markets may continue to look through this near-term uncertainty if they are confident that vaccines make this a temporary, though possibly deep, hit to economic activity.
Georgia’s runoff elections tomorrow will determine the makeup of the Senate for the next two years
Tomorrow sees the runoff elections in the state of Georgia which will ultimately determine the balance of power in the Senate with wide implications for President-Elect Biden’s legislative options for the next two years. It is worth noting that the Republicans currently have 50 seats to the Democrats’ 48, however if the two Georgia seats go blue then Vice President Harris will cast the deciding vote in the Senate, giving the Democrats the narrowest of working majorities. The most important near-term policy will be fiscal stimulus and the lie of the land post tomorrow will be a significant factor in determining how large or small any Q1 stimulus package is.
On Wednesday, we will see the joint session of Congress to formally count the electoral college votes for the next President. This is normally a formality but with several Republican senators saying they will challenge the result, expect some headlines even if the majority vote to move on and certify the result.
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