LAST WEEK – KEY TAKEAWAYS
MARKETS: SHARES WELCOME DEMOCRAT’S VICTORY IN SENATE
- Global shares rose as they focussed on the prospect of further support measures for the US economy rather than the events in Washington DC on Wednesday and the impact of lockdown on the US job market (see US section);
- The Democrat party won the two remaining seats in the Senate (the upper house in US politics), giving Joe Biden greater control over the agenda he pursues after he is inaugurated as the next US president on 20th January.
- Omnis view: The markets welcomed the Democrats control of both Houses of Congress because it should be good news for the US economy, and in particular smaller companies. In the short term, they are likely to expand the $900 billion relief package agreed before Christmas, and in the longer run they are expected to increase government spending on infrastructure projects such as transport links.
UK: SHARES RALLY AS UK AND EU SEAL TRADE DEAL
- UK shares got off to a strong start to the new year after the UK and EU agreed a free trade deal just before the Brexit transition period ended on 31st December;
- UK shares also gained from the improved outlook for the US economy and rising oil prices (see Commodities section).
- Omnis view: While a period of adjustment is likely to follow, and the free trade deal favours goods over services, the UK markets can finally move on from Brexit. Both shares and the pound should benefit in the long term from greater certainty about the trading relationship with the EU.
US: ECONOMY SHEDS JOBS
- According to the non-farm payroll report, an indicator closely monitored by the Federal Reserve (US central bank), the US economy lost jobs in December for the first time since April.
- Omnis view: This loss of jobs shows the impact of the latest wave of coronavirus infections on the US economic recovery as the hardest-hit sectors were most vulnerable to lockdown restrictions, such as leisure and hospitality. However, the Fed is unlikely to introduce any new measures, especially as the relief package discussed above should shoulder some of the burden.
EUROPE: LOCKDOWN WEIGHS ON CONSUMER SPENDING
- Spending by EU shoppers fell by 5% in November compared to the previous month, while an early estimate of inflation showed prices were forecast to rise by 0.3% in the EU in December compared with November.
- Omnis view: The drop in consumer spending was to be expected because many European countries returned to lockdown in November. It should start to recover as the speed of vaccinations increases and restrictions ease.
COMMODITIES: SAUDI ARABIA REDUCES OIL OUTPUT
- Oil prices rose after Saudi Arabia said it would cut production in February and March and most members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to keep output on hold.
- Omnis view: Saudi Arabia is one of the world’s biggest oil producers, so by cutting output it is trying to support prices which fell due to the drop in demand caused by lockdown restrictions. A higher oil price boosts energy heavy stock markets like the UK’s FTSE 100.
LOOKING AHEAD – TALKING POINTS
- Monday- Chinese inflation (rate at which prices rise) in December;
- Wednesday- US inflation in December;
- Thursday- Chinese imports, exports and balance of trade in December;
- Friday- UK economic growth in November; US retail sales in December.
- US banks are among the first companies to report company profits for the final quarter of 2020 this week.