Week ending 18th December 2020.

Overall it has been a ‘nothing week’.

We had high hopes on Brexit negotiations, US fiscal stimulus talks and monetary policy meetings at the major central banks, but all effectively turned out to be non-events.

Although we didn’t expect the US central bank, the Fed, to lower US interest rates from their current rate of 0.25% given the potential for additional fiscal stimulus (as fiscal stimulus will help those households and businesses, such as shops and restaurants that have been hard-hit by the coronavirus outbreak and associated lockdowns much more than an additional interest rate cut), we had hoped that the Fed would either tweak their QE program or provide guidance on its future.  Unfortunately, all we got was a vague commitment to maintain the current level of QE until “substantial” progress has been made toward its inflation target and employment goals – which is very much a ‘wait and see as we don’t know what the inflation or employment goal is until we see it’ sort of statement.

While we don’t believe the Fed is likely to increase US interest rates for several years, it would have been nice to have this confirmed by Fed policymakers as this commitment would provide a boost to global equity markets – especially as recent US economic data suggests that the US economic recovery is starting to lose momentum.  For example, US retail sales fell 1.1% in November, while October’s data reading was revised down from a 0.3% increase to a decline of 0.1%; and the weekly US initial jobless claims increased to 885,000 from 862,000 – its worst reading since early September as a number of states have started to impose stricter lockdowns as coronavirus cases and hospitalisations continue to climb.

In the UK, the BoE also left interest rates and QE unchanged as the UK’s post-Brexit transition period trade arrangements are still unknown – although policy makers do, thankfully, appear ready to act to support the economy if it is necessary.

As for Brexit and US fiscal stimulus negotiations, the theatrics continues to keep us on tenterhooks – although in the US the recent disappointing economic data hopefully gives politicians in Washington, from both sides of the aisle, an incentive to stop playing brinkmanship and push through a fiscal aid package for struggling consumers and businesses.

While this, our final Market Update of 2020, may appear to be slightly downbeat, it is more a reflection of our frustration as we had hoped that after such an intense and emotional year we would have some clarity on Brexit and US stimulus before the Christmas break – although we believe 2021 should be a positive year for global equity markets as coronavirus vaccines will mean the consumption of toilet paper will be out and demand for traveling and eating out will be back in, but an aggressive US fiscal stimulus package and a Brexit trade agreement would turbo-charge the recovery and make 2021 even better!

Finally, we would like to thank you for sticking with us over the past 10 months as we navigated your investments through one of the most challenging periods we have ever experienced, and in the words of John Lennon from his 1971 song ‘Happy Xmas’, we would like to wish you and your family “a very Merry Christmas, and a happy New Year, let’s hope it’s a good one, without any fear”.

And don’t worry, we are still working and managing your investments over the Christmas period, but as economic data releases and news tends to quieten, our next Weekly Market Summary will be Monday 4 January 2021 – although we will of course provide you with a Market Update if any major market moving events happen in the meantime.

Investment Management Team