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US markets edged up to reach further new highs last week, despite a relatively weak consumer confidence report. European equities outperformed the US, with the EuroStoxx up by 0.6% and the FTSE 100 up by 0.9%, helped by the UK GDP report which exceeded expectations in spite of tightened lock-down conditions. UK GDP was reported up 1% quarter-on-quarter in Q4, doubling expectations, and was underpinned by services, with GDP for December up 1.2% month-on-month. The VIX volatility index remained flat at around 20. Donald Trump’s senate trial, having been impeached for the second time, occupied most attention, with continued solid earnings also helping. The most important data for the week was the report of the US CPI inflation data, which came in below expectations and registered a modest 1.4% year-on-year rate of price increases.
Global Covid numbers continue to fall and currently 0.5% of the global population is getting vaccinated per week. 2.2% of the global population has now received at least one covid-19 vaccination shot, up from 1.7% last week. Israel still leads the charge, with nearly 73% of the population having received an injection. Seychelles and UAE have also now vaccinated more than 50% of their respective populations. The UK is at 22% and the US is at 15%. 26 countries have now vaccinated 5% or more of their population. The seven-day average of global new cases is now registering around 400,000 per day, down from the recent peak of 800,000. UK cases are growing below 3% down from over 16% at the recent post-Christmas peak of the second wave, as the vaccination programme was just beginning.
Turning to the earnings season, with 70% of the US S&P Composite companies now having reported, we are tracking earnings growth around 3% year-on-year in Q4, relative to expectations at the outset of the earnings season of a fall of 9% in earnings. This suggests the US will have seen a 12% fall in earnings in 2020 v 2019 – far less than had been feared at the depths of the COVID crisis. Bearing in mind imminent massive supplementary stimulus and the possibility that the US will be growing at an annualised rate of over 6% by Q4 in 2021, it also suggests that earnings growth expectations of 23% in 2021 are not unreasonable. This week sees updates from BHP, Rio Tinto, Nestle, Barclays, Smith & Nephew and NatWest.
In terms of economic data, we have the release of the latest US retail sales data and UK inflation data on Wednesday, along with the minutes from the latest meeting of the Federal Reserve. This is followed by the European Central Bank minutes on Thursday, accompanied by UK retail sales data and inflation data for Europe.