Please find the latest edition of Weekly Digest attached.
Markets had a risk off flavour last week, as a combination of weak economic data, disappointment with the results from the Johnson & Johnson vaccine (less effective than hoped against the SA variant), and volatility surrounding retail trading patterns unsettled investors and encouraged profit taking into the month end. Global equities in sterling fell by 3.6%, and by 3.4% in US dollars. The VIX volatility index spiked upwards by 12 points to 33. However, the start of this week has seen a recovery.
On the COVID front, 1.2% of the global population has now received at least one vaccine shot. Israel still leads the charge at 55% of its population, followed by the UAE and Seychelles at just over 30%. The UK is up to 13% and the US is up to 8.9%. Over the past week, the US vaccinated more than 1.5 million people on three separate days and is accelerating their roll out. There is also the silver lining of almost no “non-COVID” flu cases this season.
There is also good news on the case front. The global seven-day average is down to 543,000 infections per day, the lowest number since early November last year and down 8% week on week. The US still has the highest seven-day average number of new cases at 150,000 per day, but this is well down from the peak at 250,000. Brazil has just over 50,000 infections per day, followed by Spain at 35,000 and the UK at 25,000.
Last week saw the release of US Q4 GDP (economic output), which was down 3.5% for the year. It’s interesting to note that the recovery in GDP has been much more rapid than the recovery in employment. The difference between real GDP growth and employment growth is the highest since 1950. Following the latest meeting of the Federal Reserve, Chairman Jerome Powell was at pains to point out at the subsequent press conference that it is far too early for the central bank to be talking about withdrawing stimulus. There is very little agreement amongst economists about when the Fed will slow asset purchases but the vast majority expect it will be at some point after Q3 this year:
Rates are only expected to be lifted after tapering with consensus expecting rates to be flat for the rest of the year and the market pricing in a similar outcome:
In terms of earnings announcements last week, of the 184 S&P 500 constituents that have reported so far, 84% have surprised on the upside and reported earnings have on average been 17% above consensus expectations. Key events for the week ahead will be the Bank of England meeting (on Thursday) and the ongoing US stimulus negotiations. The Republicans are “bidding” $600-$900 billion versus the Democrats’ $1.9 trillion range-finder. Democrats would like to present bills by Friday, but in reality the process is unlikely to finish before mid-March. In terms of company earnings, this week sees reports from ThermoFisher Scientific already (excellent), SSE, Amazon, Alphabet, Pfizer, BP, Paypal, Vodafone, Compass, Xylem, Glaxosmithkline, Roche, Unilever, and Royal Dutch Shell.