Team No Comments

Daily Investment Bulletin

Please see below Daily Investment Bulletin received from Brooks MacDonald earlier this afternoon. The update provides analysis on the fall and rise of bond markets in response to political developments in the US and Italy over the past few days.  

What has happened

Equity markets retained a constructive tone yesterday, but it was really bond markets that did the most travelling. Initially US Treasury bond yields fell as markets continued to digest the series of Fed governors who reassured bond investors that they would remain accommodative for the foreseeable future. Overnight however, Bloomberg reported that President-elect Biden’s administration would be seeking a bi-partisan $2 trillion bill which led the decline in yields to reverse. The interplay of the nascent economic recovery, fiscal stimulus and monetary stimulus will be a key theme of 2021.

Italian politics

As widely expected, Matteo Renzi announced yesterday that his party, Italy Alive, was quitting the government’s coalition. Matteo Renzi previously was Prime Minister as well as leader of Democratic Party however his new party has far fewer seats in Parliament. Those few seats are still enough to topple the delicate coalition, but investors are currently expecting an election to be avoided. Prime Minister Conte may now resign, or a vote of confidence may be called, regardless Conte will first seek to build a new coalition amongst the parties. Should this fail we may see a change of Prime Minister or a technocratic administration as an interim measure. Hope that Italy could avoid the destabilisation of fresh elections helped support Italian government bonds after a difficult start to the week.

US Politics

The major news story yesterday was the second impeachment of President Trump, a first in American history. The key question now is when the articles of impeachment will be reviewed by the Senate, commencing the trial. There is an active debate amongst Democrats over whether it is better to deal with the trial as the first order of business under a new White House or whether it is prudent to conclude other business first. There is certainly no urgency on the Senate trial given the trial will take place after President Trump leaves office however the political palatability of a delay is probably the key factor.

What does Brooks Macdonald think

With talk that President-elect Biden will seek a $2 trillion package, well ahead of expectations, cyclical equities are seeing another boost overnight and today. Today we hear from Fed Chair Powell who will be talking about the Fed’s policy framework. Investors will be scouring the speech for commitment to the mood music from recent Fed governor speeches which have sought to reassure markets that monetary accommodation is here to stay.

Please check in again with us soon for more relevant data and market analysis.

Stay safe.

Chloe

14/01/2021

Team No Comments

Brexit: Where next?

Please see below an interesting article received from Invesco earlier this afternoon, which provides an insight into the intricacies of the UK’s relationship with the EU following the long-awaited agreement of Brexit terms on Christmas Eve.

Almost four and a half years to the day since the Brexit referendum took place, the terms of the future relationship between the UK and the European Union were finally agreed on Christmas Eve. Having spent the final months of the year wrangling over provisions relating to the level playing field, governance and enforcement mechanisms, and fisheries, both sides proclaimed victory as the legal text on these issues was finally settled.

In Downing Street, Prime Minister Boris Johnson declared that the UK had delivered on the referendum verdict by taking back control of its borders, laws and waters, ending the jurisdiction of the European Court of Justice and gaining the freedom to set its own rules and standards.  In Brussels, Commission President Ursula von der Leyen said the deal had safeguarded the integrity of the EU’s Single Market and the four freedoms of people, goods, services and capital, demonstrating that having left the EU the UK would no longer be able to enjoy the benefits of membership.

In reality, the verdict on which side was better able to secure its political priorities in the Agreement, and at what cost, will take many months, if not years, to reach.  While agreeing a comprehensive trade deal in just ten months was a significant achievement for both sides, the full implications of the 1,246 pages of text and their impact on diverse business models on both sides of the Channel will only become clear over time:  even the most obvious physical signs of separation – at the Dover-Calais border – have yet to manifest themselves given that haulier traffic has been much lower than normal during the early days of the year.

But what is clear is that, by avoiding a ‘no deal’ outcome, the UK and the EU have also avoided the risks of an acrimonious break up and blame game that could have soured relations between the two sides for years to come.  Instead, they have a platform on which to build – should both sides choose to do so – in the coming years and decades. 

Yet despite the last-minute Agreement, significant questions about the future relationship remain.  What will be the key drivers of the UK-EU relationship in next years?  Where will the main points of friction between the two sides emerge?  Will the Agreement stand the test of time or require significant revision?  Will, as President von der Leyen optimistically declared, both sides be able to “leave Brexit behind us”; or will the UK join Switzerland as a country outside the EU but in almost constant negotiation with its near neighbour?

It seems clear that on the UK side, the Agreement will not end the debate on Brexit.  The Conservatives are already road testing messaging for the next election on the basis of an appeal to “keep Brexit done”,  playing to concerns that Labour, should they regain power, would seek to forge a closer relationship with the EU in the future.   Former Prime Minister David Cameron’s gambit to try to finally put the EU question to bed may instead have kept Pandora’s box wide open.  Britain’s relationship with the EU looks set to continue to be a polarising issue in UK politics, and something that the devolved administrations will seek to play to their advantage in relations with Westminster.  By comparison, the EU will be keen to leave Brexit, as a distinct problem to be solved, well behind it; but it will fuel the EU’s growing emphasis on strategic autonomy, requiring a delicate balance to be found between wanting to keep the UK within its area of influence while at the same time arguing for self-sufficiency in areas where it sees itself in competition with the UK.

One bellwether of this approach is likely to be the EU’s stance towards the UK on financial services.  Despite the importance of financial services to the UK economy, and the cross-border integration of industry operations in Europe, the financial services section in the Agreement contains just eight articles, covering little of real substance. With the EU keeping the UK in suspense on a range of potential equivalence determinations, it remains to be seen whether the two sides will remain aligned on major regulatory issues such as sustainable finance, financial stability and protections for retail investors.  The Governor of the Bank of England, Andrew Bailey, has argued that the UK cannot be an automatic rule-taker from the EU.  But where might the UK seek to use its freedom to diverge to forge a separate path; and what would be the EU’s likely response?

Finally, in a world of increasing polarisation and renewed threats to international trade, market stability and security, will the lack of a framework for cooperation on foreign policy, security and defence cooperation in the Agreement significantly weaken the UK and EU’s ability to defend their interests on the international stage?  How might actors such as Russia and China seek to exploit the UK’s exit from the EU; and will Europe’s collective influence in Washington now be weaker than before?

Although the UK and EU are now separate entities, they now have the opportunity to move forward together as allies in a productive and positive way. Please check in again with us soon.    

Stay safe.

Chloe

13/01/2021

Team No Comments

Brooks Macdonald: Weekly Market Commentary | A strong start to the new year for markets

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

Team No Comments

Monday Market Update

Please see below Monday Market Update received from Blackfinch Group this morning, which reflects on how the market is reacting to current world events.

UK COMMENTARY

  • Boris Johnson announced a third national lockdown, with households told to stay home until at least 22nd February.
  • Chancellor of the Exchequer Rishi Sunak unveiled a £4.6bn grants package to help businesses survive the new lockdown.
  • Retail footfall declined sharply after Christmas, according to market researcher Springboard. The number of recorded shoppers was down 23.2% week-on-week and 55.7% year-on-year.
  • British supermarkets enjoyed their busiest ever December, with shoppers spending £11.7bn on groceries over the month.
  • December saw seasonally adjusted Purchasing Managers’ Index (PMI) survey data for the manufacturing sector rise to a three-year high of 57.5, up from 55.6 in November.
  • Services sector PMI rose to 49.4 in December, up from 47.6 in November, but remained below the 50.0 breakeven mark, suggesting activity was still contracting.
  • PMI survey data for the construction sector eased slightly to 54.6, down from 54.7 in the previous month.

US COMMENTARY

  • The Democratic Party won both seats contested in the Senate run-off elections in the state of Georgia, securing control of the Senate due to the vice-president’s casting vote.
  • Protest groups stormed the buildings on Capitol Hill following Donald Trump’s speech outside the White House. The scenes shocked onlookers around the world, with more than 60 police officers injured and five people dead. However, the violent protests did not stop the certification of Joe Biden’s electoral victory.
  • The US economy shed 140,000 jobs in December, the first monthly decline since April.
  • Initial jobless claims data beat expectations, with the number of US citizens filing for first-time unemployment falling to 787,000, despite economists predicting a reading of 800,000.
  • ISM PMI manufacturing survey data defied market expectations and rose strongly to 60.7 in December, up from 57.5 in November.

ASIA COMMENTARY

  • In China, Caixin/Markit PMI survey data for the services sector fell to 56.0 in December, compared to the November reading of 57.8.

We will continue to source and publish relevant market analysis and news as we push through the UK’s 3rd national lockdown in the knowledge that we have 3 approved vaccines to be rolled out. Please check in again with us soon.

Stay safe.

Chloe

11/01/2021

Team No Comments

A.J. Bell – A preview of markets in 2021 in five charts

Please see below an article from A.J. Bell, which was received over the weekend and outlines some of the potential market trends that we could see in 2021:

As you can see from the above, there are a number of areas to keep an eye on during 2021 and central banks and inflation will play a pivotal role in markets over the next few years.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner

11/01/2021

Team No Comments

Market predictions and investment resolutions for 2021

Please see below for Invesco’s article on Market Predictions for the year ahead, received by us yesterday 06/01/2020:

Happy New Year! No one wants a year in review for 2020, but here is what I learned from the past year: History may not repeat itself, but it sure does rhyme. What we learned from 2020 is a repeat of the lesson we learned from the global financial crisis (GFC): Central banks are very powerful. They can’t cure viruses and they can’t create jobs, but they can boost confidence and move markets — a lot. That is the big similarity 2020 had with 2009: Central bank intervention mattered, especially by benefiting risk assets.

When I think of the New Year, I think of predictions and resolutions. And so today, I provide you with a little of both.

My New Year’s predictions

1. US-China relations may get warmer. There seem to be two factions emerging among Biden loyalists: “reformists” who want to push China aggressively on key issues and check its power, and “restorationists” who want to restore US-China relations to where they were in the Obama administration. I believe Biden will do what he typically does: land somewhere in the middle. I don’t expect US-China relations to return to what they were pre-Trump. However, I do expect the relationship between the two countries to improve and normalize. In particular, I expect more predictability and less volatility. While Biden may not unwind tariffs immediately, I do expect him to unwind the Trump administration tariffs after a “study” of their impact (which has obviously been negative for parts of the US economy, especially agriculture). The Biden administration will likely be aggressive on specific issues with China and pursue those issues multilaterally — but I expect that to occur within the context of a broader US-Sino relationship that is more cordial because the fortunes of many US businesses are tied to China. The Chinese economy is on pace to soon overtake that of the US, with the timeline expedited due to COVID, which gives China growing leverage. In fact, the Centre for Economics and Business Research recently released its forecast that China will overtake the United States by 2028 as the world’s largest economy, which is five years earlier than previously estimated due to the two countries’ very different recoveries from the pandemic.1 In addition, China has already begun to signal that it would like improved relations with the US. China’s Foreign Minister Wang Yi said in a recent interview with the South China Morning Post that both the US and China have been negatively impacted by the deterioration in their relationship over the past several years, and that US-China relations have come to a “new crossroads” with a “new window of hope” opening.2

2. Developed countries may have a better recovery than they did post-GFC. As COVID-19 vaccines are broadly distributed, I expect the economic recovery to be far more robust and inclusive than the economic recovery coming out of the global financial crisis. I believe the services industry will rebound with greater intensity, benefiting many lower income workers. That doesn’t mean that there won’t be more glitches in distribution — I fully expect there to be. And there will likely be more pandemic-related headwinds, such as the development of worse strains of the virus. However, once a substantial portion of the population is inoculated, I expect the economic recovery to be powerful. 

3. Oil may rise. Given my expectation for a strong economic recovery in 2021 as vaccines are distributed, I also expect demand for oil to increase significantly. I believe this will lead to a substantial increase in the price of West Texas Intermediate crude oil — even if we see a ramp up in oil production.

4. Bitcoin may fall. I know there is a lot of excitement over Bitcoin, but it’s starting to feel a bit like Tulipmania. Bitcoin rose more than 300% in 2020, with much of the gains made in the last few months of the year.3 I continue to believe gold is a far better choice for diversification into “hard assets” and as a hedge against geopolitical risk. Bitcoin might continue to run for a while this year, but I expect it to be volatile and to ultimately disappoint, as it has in the past after strong rallies.

5. The S&P 500 Index may have another double-digit return in 2021. With vaccine distribution beginning, a robust economic recovery anticipated in the not-too-distant future, as well as extraordinary accommodation from the Federal Reserve, I expect a continuation of the stock rally we saw in 2020, albeit with drops and pauses along the way. Better-than-expected corporate earnings should also help.

My New Year’s resolutions

1. Stay invested and well diversified. While I feel very confident about risk assets in 2021, that doesn’t mean there won’t be volatility and sell-offs in the coming year. I believe having adequate exposure to stocks, fixed income, and alternative asset classes is key to building a portfolio that may withstand volatility.

2. Look to Asia’s emerging markets. My outlook is especially bright for the emerging markets countries that have managed the pandemic well, such as China and Korea. These economies have a head start on the robust vaccine-fueled economic recovery that I expect in 2021.

3. Don’t overlook tech. While the economic rebound may result in strong performance by cyclical stocks in sectors such as energy and consumer discretionary, I don’t necessarily expect tech stocks to underperform. I continue to favor adequate exposure to the technology sector, as I believe many tech stocks may continue to benefit from trends that accelerated during the pandemic.

Although nothing is guaranteed for the future as proven by the year 2020, expert insight and opinion like this is a good way of seeing how actions and news developing worldwide could have an impact on the investment markets, and thus highlights good topics for discussion.

Please utilise blogs like these to aid your own informed opinions on what may lie ahead for the markets, but I reiterate that nothing is guaranteed for the future.   

Keep safe and well and all the best for 2021.

Kind Regards

Paul Green

07/01/2021

Team No Comments

Daily Investment Bulletin

Please see below Daily Investment Bulletin received from Brooks MacDonald earlier today. The update provides market analysis and refers to developments in US politics and the Oxford/Astrazeneca vaccine roll-out. 

What has happened

The two seats in the Georgia run-off elections look to be tipping in favour of the Democrats which will have wide ranging implications for the first two years of President-Elect Biden’s Administration. Markets were quick to interpret this with US index futures losing ground and Treasury yields rising.

Vaccine race hots up

We saw a swathe of forward-looking PMI data yesterday from across the world, much of this is pointing to more optimism ahead, but that optimism is largely focused on hopes around the vaccine. As the Oxford/Astrazeneca vaccine begins to be rolled out across the UK, the government announced that 1.3 million people had now been vaccinated and around 23% of those over 80. The wider the roll-out becomes the more political choices governments will have as immunity for those most at risk of hospitalisation or death will give hospitals capacity for any surges amongst less-at-risk populations.

Georgia run-off

Whilst there were concerns that we wouldn’t see a result for several days, with 98% of the vote counted it looks likely that both Democrat candidates will with their races. This brings the Senate to a 50-50 tie but Vice President-elect Harris will have the deciding vote and therefore will be able to edge a vote over the line should all Senators vote along party lines. This would give far more legislative options to President-elect Biden but legislation would need to be unanimously supported by Democrat Senators to pass so there will still be some consensus building required to pass laws. All short-term attention will be on US Fiscal Stimulus with, if the polls are confirmed, a larger package now on the table for Q1 2021 possibly including an infrastructure package alongside to provide a further boost. Of course the sting in the tail could be tax rises or increased regulation around healthcare or big technology, but the wafer thin working majority will moderate any of the more ambitious Democrat policies. With expectations of nearer term stimulus, the market expects the Federal Reserve to need to do marginally less in terms of monetary policy and as a result the 10 year US Treasury hit 1% for the first time in more than 9 months.

What does Brooks Macdonald think

Whilst the Senate looks likely to be split 50/50 with VP-Elect Harris’s vote tipping the balance, such a narrow working majority will inevitably reduce the risk of any highly divisive legislation passing the Upper Chamber. There is also the issue of the filibuster which, unless reformed, can effectively block legislation unless there are 60 Senators in favour of moving the bill along.

We will continue to publish news and market analysis throughout the third and hopefully, final, national UK lockdown. Please check in again with us shortly.

Take care.

Chloe

06/01/2021

Team No Comments

Markets kick off new year with trepidation amid more lockdowns

Please see the below update from Brewin Dolphin received late last night:

Many global markets have fallen over the past week, thanks largely to a sell-off on Monday – the first trading day of the year. While many markets finished 2020 at all-time highs, uncertainty around the new Covid-19 variant, surging case numbers, and new lockdowns have dented optimism.

Hopes are now pinned on the mass vaccination programmes underway around the world.

Despite the pandemic, 2020 ended up being a surprisingly good year for a number of markets. The S&P500 ended the year up by 16.3%, while the Nasdaq gained 44%. In the UK, however, the FTSE100 endured its worst year since the financial crisis, losing 14.3%. The UK’s blue-chip index is heavily weighted towards stocks that were hit hardest by the pandemic, including banks and energy companies. It also has very little exposure to the tech sector, which has had a stellar 12 months. Additionally, the FTSE100 has been hindered by a rising pound; since many companies in the index earn their revenue in US dollars, a strong pound reduces their earnings when converted into sterling.

The performance of other markets varied widely. Germany’s DAX index ended the year up 3.6%, which may not sound much but it did pass its previous record high.

France’s CAC 40 fell by around 7%, while Japan’s Nikkei gained 16%. In China, the CSI300 rose by 27% during 2020.

Last week’s markets performance*

  • FTSE100: -0.46%
  • S&P500: -0.70%
  • Dow: +0.36%
  • Nasdaq: -1.18%
  • Dax: -0.25%
  • Hang Seng: +3.4%
  • Shanghai Composite: +3.66%
  • Nikkei: -1.12%

*Data from close of business on Tuesday 29 December to close of business on Monday 4 January.

Equities in mixed start to new year

Global equity markets saw healthy gains on Monday as continued optimism about the vaccine rollout provided confidence.

However, the mood soured as the day wore on, and markets in Europe and the UK finished off their highs as it became clear that more lockdowns were imminent.

Relatively robust economic data out of China helped most Asian emerging markets at the start of the week.

In the region, the Shanghai Composite closed up by 0.86%, while Hong Kong’s Hang Seng gained 0.89%. South Korea’s KOSPI rose by 2.47% and Taiwan’s TSEC 50 gained 1.15%.

In Japan, however, the Nikkei lost 0.68%, as the government said that vaccinations may not start until February, despite surging cases.

In Europe, markets were up across the board. The German DAX eked out a 0.06% gain, while France’s CAC 40 rose 0.67% and the FTSE Mibtel in Italy rose 0.37%.

But it was the FTSE100 that outperformed on the day, rising by 1.72%, helped by a weak pound. 

In the US, the mood was less upbeat, perhaps caused by news that the Covid-19 variant had arrived in New York, or perhaps the rumblings about more lockdowns in the UK and elsewhere had investors spooked.

Either way, US markets had their worst day since October, with the Dow losing 1.25% to close at 30,223.89, while the S&P500 fell by 1.48% to 3,700.65. The Nasdaq fell by 1.47% to close 12,698.45. It should be remembered the indices are still near their all-time highs.

New lockdowns announced or extended

Boris Johnson’s address to the nation on Monday night, in which he announced a strict national lockdown for England, set to last until at least mid February, has intensified the short-term headwinds now facing the market. Similar lockdowns have been announced around the UK, and also in Germany and Japan, with containment measures increasing in South Korea. Others are certain to follow.

January is traditionally a tough month, and the current market wobble should be set in the context of the recent strong run. November 2020 was the best month for equities in 20 years, and December was also historically strong. It should be no surprise if the markets fall back in the near term. But fundamentals remain solid. There is a lot of money sitting on the sidelines waiting to be invested that has failed to find a home since the sell off last March. Only this time, we are at the beginning of a new business cycle and recovery, as opposed to last March, when we were at the tail end of an old cycle. So on a 12-month view, we remain positive.

Source: Refinitiv Datastream

UK economic data ends year on a high

The last business survey covering the UK’s manufacturing sector shows that factory activity was improving at the fastest rate in three years.

The IHS Markit/CIPS purchasing managers’ index rose to 57.5 in December from November’s 55.6. Any reading above 50 indicates activity is increasing. The rise was due largely to stockpiling by manufacturers ahead of the Brexit deadline, in case a deal was not reached. It may therefore drop back in the near-term as the lockdowns bite and activity reduces.

UK mortgage approvals are also booming, with 105,000 mortgages approved in November – the highest since 2007, before the credit crunch kicked in. Buyers are rushing to take advantage of the stamp-duty holiday announced by Chancellor Rishi Sunak, which expires in March. It is likely that activity will calm down in the summer.

Please continue to check back for more brief market views from a range of different fund managers. This should help you get a handle on the fast changing outlook.

Andrew Lloyd

06/01/2021

Team No Comments

Brooks McDonald Daily Investment Bulletin

Please see below for the Daily Investment Bulletin from Brooks McDonald, received by us today 05/01/2021:

What has happened

Markets started the day positively but the New Year jubilance faded as the US COVID outlook worsened and a tight Georgia run-off today could go either way. The US index started the day in positive territory before falling as much as 2.5% then settling 1.5% down at the close.

COVID’s new variant and restrictions

The new COVID variant has been responsible for a large quantum of the surge in the South East of England and news that it had now been detected in New York, Colorado, California and Florida did little to help the mood. Whilst there is no evidence that the new strain is more deadly it does appear to be transmitting aggressively, causing strain on the healthcare system. It is this strain that led to UK PM Johnson announcing that England would move into its third Lockdown with the new stay at home rules far more reminiscent of March 2020’s with schools closed and only essential journeys allowed. UK Chancellor Sunak is expected to unveil a fresh support package for UK companies in light of these new tough restrictions which are expected to produce a similar economic impact to that seen in March and April last year.

Georgia run-off

The other event keeping New Year optimism in check is the Georgia Senate run-off. This is clearly key in determining which party has control of the Senate and therefore whether a blue sweep can be achieved. Back in November the market’s base case was that the Democrats would win every race and this would give them the flexibility to launch substantial stimulus in Q1 2021. Once this didn’t immediately materialise, investors warmed to the idea of a split Congress as this would curb the chances of tax rises, tougher regulation and other less economically positive reforms. As we approach today’s election, the Democrats are ahead in both seats, albeit it narrowly, and investors are not entirely sure which side of the coin they want the race to land.

What does Brooks Macdonald think

A Democrat clean sweep or a split Congress both have benefits and negatives but our instinct is that a split Congress would be more market friendly as it retains the status quo and financial assets will look through the positives of US Fiscal Stimulus quite quickly as compared to broader reforms. Even if the Democrats do take both seats, and VP-Elect Harris is left with the deciding vote in the Senate, the current filibuster rules will stop contentious legislation. If we do see a blue sweep, markets will look very closely at any suggestions from the Democrats that they would look to remove the Filibuster from the next Senate session.

Regular daily updates like these are a useful method of frequently updating your holistic view of the markets, especially given the way the world is rapidly changing by the day with Coronavirus.

Please continue to utilise these blogs to help inform your own views of the markets.

Stay safe and well

Paul Green

05/01/2021

Team No Comments

Brooks Macdonald – Weekly Market Commentary

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

Read detailed economic and market news from our in-house research team.

• Weekly Market Commentary

• COVID-19 updates

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.

Please continue to check back for our latest updates and blog posts.

Charlotte Ennis

05/01/2021