Please find the latest edition of Weekly Digest attached.
Equity markets fell on Friday, with the US closing down 0.7% and the UK by 1%. The cause was a combination of soft economic data releases in the US (US retail sales for December fell 0.7% and consumer confidence was reported below expectations), concerns over new COVID variants, and some second thoughts about Biden stimulus package. The $1.9 trillion package announced by the incoming administration was welcomed in its magnitude, but the mention of likely tax increases on the wealthy to help fund the package was unexpected in its timing. In addition, Friday saw US earnings season kick-off in earnest, with reports from JP Morgan, Citigroup and Wells Fargo. Looking back on the week, Donald Trump was impeached for the second time and will go to trial in the Senate after the new inauguration.
COVID Update
COVID has seen infectious new variants become more widespread and a renewed outbreak in China has been reported. We are still awaiting news on vaccine efficacy relative to the new (SA / UK / Brazil) strains. There has been some unwelcome news from Norway, who have reported the death of a number of (twenty or so) elderly recipients of the Pfizer vaccine soon afterwards. On a more positive note, COVID immunity following infection has been estimated to be c. five months. The global seven-day average number of new infections is now sitting at 686,000 infections per day, down from 720,000 the week before. However, given the variability of the growth rates, we cannot be sure to be past the final wave until the vaccines have been widely distributed.
Goldman Sachs estimates that most of the world is still far from herd immunity, based on the link between excess mortality and the results from antibody tests. This shows that there is still a clear need to get the vaccines rolled out swiftly. The UK has vaccinated 3.9m people, or 6.5% of the population – it is number 4 in the world in this regard. The US is number 5, having vaccinated 10.6m people, or 3.7% of the population. Europe as a whole has vaccinated 25m people.
Market Commentary
Last week, EU November industrial production came out at -0.6% year-on-year, compared to consensus expectations of -3.3%. This was the biggest surprise for the series since August 2011 and the EU economic surprise index now remains well above that of the US:
Chinese economic activity (GDP) numbers were strong, and better than expected (+6.5% for Q4 2020 year-on-year versus +6.1% expected), driven by rapid industrial production growth. GDP growth for 2020 as a whole was +2.3% vs +2.1% expected. China is likely to be the only G20 country that reports a positive GDP growth rate for 2020. The net result is that China’s share of the global economy is likely to rise to 14.5% two years ahead of forecast. China’s economy is now expected to overtake the US’s economy by 2028 (according to the IMF China’s GDP was 71% of US levels last year). The Fortune 500 list of largest companies by revenue already includes more Chinese based companies (124) than US-based companies (121).
The Week Ahead
The big focus of the week will be Joe Biden’s inauguration, which is taking place on Wednesday. The Q4 earnings season continues, with 42 names from the S&P composite and 30 companies from the European Stoxx 600 due to report. Of particular interest to us are Experian, Rio Tinto, BHP Group and Goldman Sachs this morning, followed by Burberry, Procter & Gamble and ASML on Wednesday. Thursday sees updates from Intuitive Surgical and Ibstock. On the same day, both the European Central Bank and the Bank of Japan are holding their latest meetings. In terms of economic data, we have inflation data for December for the UK and Europe on Wednesday, followed by UK consumer confidence and retail sales data on Friday.
On a side note, a small business but a holding in many client portfolios, Hotel Chocolat released their Christmas numbers this morning. Online sales growth has more than offset physical store closures, and not just at Christmas, which is positively surprising and impressive.