LAST WEEK – KEY TAKEAWAYS
MARKETS: VACCINE DEVELOPMENTS AND BIDEN VICTORY BOOST SHARES
- Global shares seem set to experience one of their best months on record in November after making further gains amid optimism about a coronavirus vaccine and Joe Biden’s victory in the US presidential election;
- However, the UK’s economic outlook weighed on domestic shares (see ‘UK’ section below) last week, and the markets were also wary of rising infections in the US and tightening lockdown restrictions in Europe.
- Omnis view: The markets have welcomed what seems to be the resolution of this year’s two greatest risks. The vaccine will hopefully end restrictions and spur the economic recovery, while the Biden administration should be more predictable than President Trump’s spell in the White House.
UK: BREXIT UNCERTAINTY WEIGHS ON POUND
- The pound weakened against the US dollar as negotiations resumed between the UK and EU over a free trade deal with just under five weeks until the transition period ends;
- There was bad news for UK shares too, which fell after the Chancellor of the Exchequer Rishi Sunak forecast that the economy will contract by 11.3% this year due to the impact of the pandemic.
- Omnis view: The UK and EU are still struggling to resolve the same issues (fishing rights and business regulations) which have held up Brexit talks over the last few months. Whether they are contentious enough to prevent an agreement remains to be seen, but the pound is likely to continue fluctuating in the meantime.
GLOBAL ECONOMY: BUSINESS ACTIVITY RISES IN US
- Figures published by research firm IHS Markit showed business activity expanded in the US in November compared to a month previously, while it shrank in the UK and EU over the same period;
- However, weekly employment figures suggested that, with government support much reduced, high infection rates are causing job losses.
- Omnis view: Fuelled by measures introduced by the government and the Federal Reserve (US central bank), the US economy has bounced back strongly from the depths of the coronavirus-induced recession. However, recent figures show the recovery remains fragile. Further support is required, but the timing is uncertain as the government transitions from the Trump to the Biden administration.
COMMODITIES: VACCINE OPTIMISM BOOSTS OIL PRICES
- Optimism that a vaccine will lead to an increase in business activity and boost demand for oil pushed up prices to their highest level since March.
- Omnis view: Lockdown restrictions have slowed business activity which has reduced demand for oil and weighed on prices. The news that restrictions might ease thanks to a vaccine has reversed this effect and should benefit energy-heavy stock markets like the UK’s FTSE 100.
LOOKING AHEAD – TALKING POINTS
- Monday- Japanese retail sales in October;
- Tuesday- Japanese unemployment rate in October; early estimate of EU inflation (rate at which prices rise) in November;
- Wednesday- EU unemployment rate in October;
- Thursday- Final estimate of business activity in November in the UK, EU and US; EU retail sales in November;
- Friday- US non-farm payroll report (job creation) in November.
- Negotiations between the UK and the EU continue this week.