Please see the below weekly market commentary from Brooks Macdonald received yesterday evening:
In Summary
- Markets start 2021 strongly as expectations of US fiscal stimulus buoy risk assets
- US jobs market weakness could be good news for risk assets as it ensures the Federal Reserve will remain cautious
- The US House of Representatives may launch impeachment proceedings against President Trump despite him only being in office for nine more days
Markets start 2021 strongly as expectations of US fiscal stimulus buoy risk assets
Markets had a strong start to 2021 with equities welcoming the prospect of higher US fiscal stimulus. Outside of equities, bond markets saw substantial moves as the US 10-year treasury, which has remained stubbornly below a 1% yield over the last nine months, pushed to 1.12% as investors priced in less monetary stimulus. One of the principle beneficiaries of this move was the banking sector which outperformed in the US and Europe and was a significant factor in the large upswing in the bank-dominated UK large cap index.
US jobs market weakness could be good news for risk assets as it ensures the Federal Reserve will remain cautious
The US payrolls data came in worse than expected with the labour market losing jobs month-on-month for the first time since April 2020. Delving into the detail, the weakness was driven largely by services impacted by COVID-19 restrictions such as restaurants and bars. There was better news in Europe where unemployment continued to fall faster than analyst expectations. With markets already experiencing a sell-off in expectations of central bank assistance, slightly weaker US jobs data could actually be a positive for risk assets as it means the Federal Reserve will be cautious of stepping away too early. Markets were largely unfazed by the miss vs expectations, suggesting this narrative is starting to gain traction.
The US House of Representatives may launch impeachment proceedings against President Trump despite him only being in office for nine more days
House Speaker Pelosi has said that the Democrat-controlled House will seek to impeach President Trump this week unless Vice President Pence invokes the 25th Amendment and removes the President. Given President Trump is in office for just nine more days, the market reaction to a second impeachment hearing has been far less dramatic than the first time around. Given these tight timings it may well be that the Senate hearing (effectively the trial) takes place post President Biden’s inauguration. It is unlikely that the Republican controlled Senate would seek to reconvene before the scheduled date of 19 January to hold an impeachment trial for a Republican President.
Even with a Democrat-controlled Senate, two-thirds of Senators need to vote to impeach President Trump for the proceedings to succeed. The main consequence of impeachment could be a ban on seeking re-election in 2024. This, combined with the social media bans on President Trump’s accounts, would make it far harder for him to achieve a political platform. Markets should largely shrug this off as theatre, however tail risks do remain for the next week.
As you can see from this update, this is a very US focused article, with all that’s going on across the pond at the minute, it’s no surprise that the US is the focus.
Although the UK isn’t having it easy at the moment either with a struggling NHS, high Covid-19 infection rates and lockdowns, it isn’t all doom and gloom. The recent news of the UK approving a 3rd vaccine and the fact that we have already vaccinated more people in the UK than the rest of Europe combined, we may actually now be seeing the end to the nightmare that has been Covid-19.
Please continue to follow the government guidance and keep yourselves safe and well, the next few months will still be difficult, but let’s all remain hopeful that life will return to some normality later in the year.
Keep an eye out for further blog updates from us.
Andrew Lloyd
12/01/2021