Please find the latest edition of Weekly Digest attached.
Last week was a tumultuous week in politics, as the Blue Ripple (the Democrats winning the Georgia senate races and thereby a wafer-thin congressional majority) combined with breath-taking scenes in Washington, as the process to confirm the election was halted by a Trump-encouraged mob physically breaking into the Capitol. The ability of investment markets to look through this disorder can be attributed both to the prospect of enhanced fiscal stimulus (as Democrats are more likely to be able to enact their programme) and also to a more decisive end to the Trump era – with Republican extremists losing credibility alongside their talisman. The Environmental theme (a Democrat policy priority) was strong, outperforming world equities by 4% last week (as measured by comparing the FTSE Environmental Opportunities index with the FTSE World index). This theme fits well with our style of management (a preference for investing in businesses that we believe will be sustainable for the long term), which aided performance in 2020, as highlighted by this graph that compares sectors deemed environmentally-friendly versus the wider market:
Away from America, key events saw the UK both going into tighter lockdown and also experiencing its first week of Brexit. This was greeted with an initial thumbs down from markets for the financial sector in the UK, but strength in commodity plays held up UK markets as a whole. The VIX volatility index was little changed at 22, which is still high relative to “normal” standards of the last 10 years.
In COVID news, a third vaccine (from Moderna) has now gained approval for use and the world is “holding its breath” for news about the available vaccine’s efficacy in relation to the more virulent SA / UK / Brazil strains. Global daily new cases and deaths have accelerated (to 6% from 5% last week) partly (almost certainly) due to the new strains’ greater virulence. The UK new cases are growing almost 3x as fast, showing just how highly infectious the new strain is, and highlighting the rationale for the new lockdown. UK daily deaths are now growing faster than global averages (over 8% v under 5%) and both are showing signs of accelerating, as would be expected. The global vaccine roll out continues and further news of the efficacy of the vaccines against the new strains is awaited, although early signs are hopeful.
Turning to this week, the US House of Representatives has introduced articles of impeachment against Donald Trump, ahead of Joe Biden’s inauguration on 20th January. In other US news, Mike Pompeo has removed curbs on US interactions with Taiwanese officials. These measures were introduced in 1979, on formally recognising the legitimacy of the communist government of China, to appease Beijing’s sensibilities. New trading restrictions have come into effect in the US on securities of Chinese companies which have military ties. US institutions Goldman, JP Morgan and Morgan Stanley have therefore moved to de-list Structured Products tied to key Hong Kong indices and stocks. On the data front, we have US inflation and retail sales data this week, followed by preliminary US consumer confidence data for January. In central bank news, we have the December meeting minutes from the European Central Bank on Thursday and the Federal Reserve’s ‘beige book’ will be published on Wednesday. Friday sees results from JP Morgan, Wells Fargo and Citigroup.