How are the global markets responding to current events?
- 7th December 2020
The UK became the first country to approve the Covid-19 vaccine developed by Pfizer and BioNTech, sending ripples of optimism through global markets. Following the approval news, the S&P 500 and Nasdaq Composite both touched record highs, but the economic toll from the pandemic continued to mount. Britain’s stock market put in a more subdued performance, as Brexit negotiations continue into the eleventh hour.
Over the week, the FTSE 100 rose almost 5% and the more UK-focused FTSE 250 added 4% by the middle of Friday’s trading session.
Britain’s Medicines and Healthcare products Regulatory Agency (MHRA) granted emergency use approval to the vaccine in the UK, which its developers say is 95% effective in preventing illness, just 23 days after Pfizer published the first data from its final-stage clinical trial. US and EU regulators are still assessing the same trial data – but have yet to give their approval. Canada said it may approve the vaccine next week. The Department of Health and Social Care has given the companies an indemnity protecting them from legal action as a result of any problems with the vaccine, press reports suggested. The government accepted there were considerable logistical challenges distributing the jab.
Britain hopes that millions of doses of the Pfizer/BioNTech vaccine will be delivered by the end of the year – “but the total will depend on how quickly it can be manufactured”, said Britain's business minister Alok Sharma on Friday. UK Prime Minister Boris Johnson warned of 'immense logistical challenges' in distributing the inoculation.
Despite the vaccine euphoria, the infection continues to spread. The US set single-day records for new infections and deaths on Thursday, as California's governor said he would impose some of the nation's strictest lockdown orders in the coming days. Cases also hit a nine-month high in South Korea.
More than 1.5 million people have now been recorded as losing their lives from Covid-19. This is one death reported every nine seconds on a weekly average.
The UK Economy
The recent lockdown in England was not as economically damaging as the first lockdown that started in March. Activity in Britain’s services sector fell less than expected in November, as the four-week partial lockdown had a smaller impact on companies than social-distancing rules earlier in the year. Businesses also grew more optimistic about the outlook for 2021. The IHS Markit/CIPS UK services Purchasing Managers’ Index of business activity (PMI) fell to 47.6 in November from 51.4 in October. This was the first time since June that it fell below the 50 level, which divides growth from contraction – and much higher than the record-low reading of 13.4 seen in April.
Supermarket groups are reportedly handing back £1.74bn in tax relief to the Treasury. J Sainsbury, Asda and Aldi said they will join peers Tesco and Wm Morrison and forgo the UK property tax relief offered by the government during the pandemic. Pets at Home also said on Friday it would make the same move. However, Marks & Spencer said it will not return the £83.7m in relief it received from the government. The measure was aimed at helping businesses suffering from lockdown measures, but sales have boomed at Britain’s major grocers.
The UK and the EU resumed talks on a post-Brexit trade deal on Sunday, despite a senior UK government source saying the prospect of a breakthrough was "receding". Current trade rules end on 31 December. Should a deal fail to be finalised, the UK and EU will do business on World Trade Organisation rules, which means the introduction of tariffs. Compromises are needed in three main areas: fisheries; standards and domestic subsidies; and dispute resolution.
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US President-elect Joe Biden unveiled his economic team, led by Janet Yellen, former chair of the Federal Reserve. She is his nominee to be the Treasury Secretary and was praised for her stewardship during the aftermath of the global financial crisis. The team was praised for its diverse nature and the fact that many of his nominees have decades of economic experience, in government, in academia and at America's central bank. Mr Biden also told Americans that “help is on the way” as he called for Congress to come up with a “robust” financial relief package.
Indeed, it appears a bipartisan $908bn stimulus agreement may already be at hand. House of Representatives Speaker Nancy Pelosi said that Congress “will have an agreement” on a new pandemic stimulus deal before it takes its Christmas break next week. Ms Pelosi spoke to Senate majority leader Mitch McConnell for the first time since the election on Thursday. Mr McConnell wants a stimulus package, but of a much lower amount.
An estimated 12 million Americans will lose unemployment benefits after Christmas if a new deal is not agreed. The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act expires on 31 December.
The Trump administration added China's top chipmaker, SMIC, and oil giant CNOOC, to a blacklist of Chinese with alleged ties to its military. The Department of Defense designated a total of four additional companies as owned or controlled by the Chinese military, including China Construction Technology Co Ltd and China International Engineering Consulting Corp. This takes the total number of blacklisted companies on these alleged military ties to 35.
Australia’s allies rushed to its defence as a political rift with China escalated. The growing diplomatic dispute turned nasty when a spokesman for the Chinese government tweeted a doctored image of an Australian soldier holding a knife to the throat of an Afghan child. When Prime Minister Scott Morrison demanded that Beijing apologise, it refused. Instead, government spokespeople accused Australia of war crimes in Afghanistan – while Chinese state media slammed it for treating “China’s goodwill with evil”. In May, China raised restrictions on imports of Australian beef and put tariffs of 80.5% on Australian barley. Last month, Beijing imposed tariffs of up to 215% on Australian wine – and is expected to block further imports, including sugar, lobster, coal and copper ore. The tension rose as data confirmed Australia has exited its first recession in almost 30 years at a stronger pace than expected.
The importance of trade links between Australia and China was demonstrated after it was revealed the value of Australia’s iron ore exports – mainly to Chinese steel mills – rose 14% in October. This was largely down to an increase in price rather than volume, but iron ore spot prices have continued to rise. They hit another record this week, as China’s recovery from the pandemic boosted demand. This should benefit UK listed miners Rio Tinto and BHP Billiton.
The ‘Holding Foreign Companies Accountable Act’ was passed on by the US House of Representatives. It stipulates that failure to comply with the US Public Accounting Oversight Board’s audits for three years in a row will result in a foreign company’s stock market listing being scrapped. This is another attack on the ability of Chinese companies to raise money abroad, as Beijing doesn’t allow the US access to Chinese company accounts. This is why many Chinese companies listed in the US are also seeking secondary listings in Hong Kong. The law is another tool designed to increase pressure on Beijing and reduce Chinese access to US capital after Mr Trump barred federal pension funds from investing in Chinese business.
Workplace chat app Slack was bought by business software giant Salesforce for $27.7bn. Slack, established in 2009, was originally a gaming company before expanding into office communications and an alternative messaging system to corporate email. It is directly competing with Microsoft. The acquisition comes as the Covid-19 pandemic increased the number of people working remotely and using tools, such as Slack, that enable it.
After a period of relative quiet in the Covid-19 pandemic, ‘meat-free’ meat was once again in the headlines. In a world first, Singapore gave regulatory approval for so-called ‘clean meat’ that does not come from slaughtered animals. The decision allows San Francisco-based start-up Eat Just to start selling its laboratory-grown ‘chicken’ nuggets in the City-state. Cells were cultured in a laboratory after being taken from a live chicken in a biopsy.
It was another grim week on Britain’s high streets. Department store Debenhams will be wound down after Christmas, with the loss of up to 12,000 jobs. Philip Green’s Arcadia group, which owns Topshop, Miss Selfridge and Wallis, amongst others, collapsed into administration – as did women's fashion chain Bonmarché. About 26,500 jobs are now at risk at the three companies. Since the start to the Covid-19 crisis, a host of shops have fallen into administration. These include Bensons for Beds, Peacocks, Jaeger, Monsoon, Quiz and Victoria’s Secret.
Retail administrations are hitting landlords hard – it looks likely office demand in city centres will fall which could cause a paradigm shift in the property market.
Opec and Russia agreed to a modest oil output increase from January by 500,000 barrels a day but failed to find a compromise on a broader and longer-term policy for the rest of next year, reports suggested. Brent crude futures rose 2.4% over the week to trade at about $49.40 a barrel midsession on Friday.
The so-called ‘green revolution’ is seeing developed nations turn to alternative energy to power a transformation of the environment and their economies. But Opec thinks it can still sell oil.
Travel and Transport
Share’s in Elon Musk’s electric-vehicle group Tesla will be included in the S&P 500 index from 21 December all at once it was confirmed. Adding the company to the Wall Street’s benchmark will force index funds to buy about $73bn worth of its shares, S&P Dow Jones Indices confirmed. Shares in the company have risen by more than 600% in the year so far.
In what can only be described as a punchy move, Ryanair ordered 75 new 737 Max aircraft from Boeing, just weeks after the plane was finally cleared to fly again. The jet had been grounded for almost two years after two fatal crashes left 346 people dead. “The Boeing 737 Max-8200 aircraft is a “Gamechanger” for Ryanair’s customers and Europe’s consumers. This aircraft, when delivered, will be the most audited and most regulated in aviation history,” Ryanair said. Chief executive Michael O’Leary said he hoped to take delivery of at least 50 of the aircraft in 2021.
Vaccine hopes boosted the US airline sector, with shares jumping sharply after the UK vaccine approval news. Companies such as American Airlines, United Airlines and Jetblue Airways jumped markedly. Shares in cruise-ship operators including Norwegian Cruise Line, Carnival Corp and Royal Caribbean Cruises also rose as investors looked to more normal conditions returning.
In other UK headlines the press concentrated on the prospects for tax increases to pay for the cost of the pandemic. The Financial Times however, reported that in Prime Minister, Boris Johnson, social media session on facebook, he said “We’ll be looking at the tax environment and the regulatory environment and everything we can do to encourage and support business in this country”.
Whilst this may seem a contrary message it does suggest that we will see measures taken in the budget to make the UK an attractive place for business post the Brexit deal or no deal. We still encourage clients to review their portfolios and their tax planning wrappers and Inheritance tax position before the budget.
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