Please see below for the Daily Investment Bulletin from Brooks McDonald, received by us today 17/12/2020:
What has happened
The Federal Reserve had their final rate setting meeting of the year and were eager to reassure markets that quantitative easing would remain until the economy had improved substantially. Whilst markets initially wavered over the lack of further measures they eventually settled largely unchanged.
Last Fed meeting of 2020
The Federal Reserve has been responsible for a large number of the blockbuster stimulus headlines over 2020 but those hoping for another round of accommodation were disappointed. The committee stressed that it would continue with the current pace of quantitative easing until ‘substantial further progress’ had been achieved towards their inflation and employment targets. There was some change to the 2023 interest rate expectations with one member showing a hike that year and also to the 2023 inflation level expectations where 4 members pointed to a small overshoot of the 2% target. Of course, a small overshoot would not pose a problem for the bank given it has unveiled average inflation rate targeting earlier in the year which will give them additional room if needed.
Update on unfinished business
The tone around Brexit talks improved again yesterday with sterling seeing further strength but remaining in the 1.09-1.11 band versus the Euro that it has been maintaining despite the high jinks of recent weeks. EC President von der Leyen said yesterday that ‘there is a path to an agreement now’ but reports suggest that fisheries remain a stumbling block. Rumours are circulating that Parliament is readying to return early next week to vote on a deal which is also supporting the UK currency. Meanwhile US Fiscal Stimulus talks continue amidst a positive tone, but the spectre of Christmas is nearing so there is a narrowing path to pass through Congress. The more contentious $160bn bill appears to have been predictably side-lined but the more substantial package seems to have the support of both sides.
What does Brooks Macdonald think
Economic data over the last few days has seen beats in Europe (specifically the compositive PMIs) and misses from the US on retail sales. This highlights how difficult it is for economists to calculate activity during periods where restrictions are gradually tightening, and consumer behaviour is shifting. The miss in US retail sales does provide further impetus for fiscal stimulus however and markets shrugging this off reflects hope that this may provide a catalyst for support rather than be a sign of things to come.
Regular daily updates like these are a useful method of frequently updating your holistic view of the markets, especially given the way the market is rapidly changing by the day with Coronavirus and Brexit.
Please continue to utilise these blogs to help inform your own views of the markets.
Stay safe and well.