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MARKET UPDATE: PROSPECT OF FURTHER ECONOMIC SUPPORT AND RISING OIL PRICES BOOST US SHARES

LAST WEEK – KEY TAKEAWAYS

US: SHARES HIT RECORD HIGH

  • US shares rallied after Republican and Democrat politicians joined forces to propose a new economic relief package worth just over $900 billion and plans for a slower resumption of production boosted oil prices (see ‘Commodities’ section); 
  • However, the number of jobs created by the US economy fell below expectations in November, according to the Non-Farm Payroll report, a measure closely monitored by the Federal Reserve (US central bank).  
  • Omnis view: The impact on the economy of the recent surge in coronavirus infections, as demonstrated by the slowdown in job creation, puts further pressure on politicians to agree a new relief package. Even though the latest proposal has cross-party support, whether both houses of Congress will approve it remains to be seen.

UK: VACCINE APPROVAL BUOYS SHARES

  • Domestic shares rose after the UK became the first country to approve the coronavirus vaccine developed by Pfizer and BioNtech, while they also benefited from rising oil prices.  
  • Omnis view: The approval of the vaccine lifted domestic shares because the sooner it is distributed, the sooner lockdown restrictions can start to ease. Furthermore, UK markets have a higher proportion of companies that are sensitive to economic growth, which will welcome the gradual return to normal.

EUROPE: CONSUMER SPENDING RISES IN OCTOBER

  • Spending by shoppers beat forecasts to increase by 4.2% in October compared to a year earlier according to the EU’s statistics agency Eurostat, while unemployment dropped slightly to 8.4% in October.
  • Omnis view: These figures were encouraging for the EU economy, but many countries have since tightened lockdown restrictions, so activity is likely to slow again in November. Meanwhile, the row over political interference which has delayed approval of the relief package agreed in July remains unresolved.

JAPAN: CONSUMER SPENDING RECOVERS IN OCTOBER

  • Japanese shares rose after figures released by the country’s trade ministry showed retail sales bounced back from a big drop in November to grow by 6.4% in October compared to a year earlier;
  • However, Japan’s unemployment rate ticked up to 3.1% in October, its highest level in more than three years.
  • Omnis view: Like the EU, Japan has experienced a second wave of coronavirus cases since October, so growth will probably slow in November. In its favour, Japan has avoided returning to lockdown so far, and the government is working on a new package of measures to support the economy.

COMMODITIES: OIL PRICES RISE DESPITE PLANS FOR HIGHER OUTPUT

  • Oil prices rose after the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to increase production in January at a slower rate than previously intended.
  • Omnis view: After cutting production during lockdown due to reduced demand, OPEC and its partners planned to expand it again in January, which would typically lower the price. However, the decision to increase production at a slower rate supports the price because it avoids flooding the market. Higher oil prices benefit energy-heavy stock markets like America’s S&P 500 and the UK’s FTSE 100.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

  • Monday- Chinese imports, exports and balance of trade in November;
  • Wednesday- Chinese inflation (rate at which prices rise) in November;
  • Thursday- UK economic growth in October; US inflation in November. 

CENTRAL BANKS

  • Thursday- European Central Bank interest rate decision.

BREXIT

  • Talks continue this week as the UK and EU try to agree a free trade deal before the transition period ends on 31st December.