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14 December 2020

Socioeconomic uncertainties dictate global markets

Global markets delivered mixed results last week, as vaccine news continued to boost sentiment among investors. The FTSE 100 added 0.29% ahead of critical Brexit talks between the UK and the EU, while the US S&P 500 lost 0.09% as a rise in weekly jobless benefit claims and few signs of progress on a fiscal stimulus package were offset by hopes for an efficient vaccine rollout which will support economic recovery.
 
UK Prime Minister Boris Johnson flew to Brussels last week to meet European Commission President Ursula von der Leyen in a last-minute attempt to reach a post-Brexit deal. It came after a 90-minute phone call between the two leaders at the beginning of the week failed to produce a breakthrough. Significant differences currently remain on fishing, business competition rules and governance of any deal. So far, no tangible progress has been made, with prospects of a trade deal looking increasingly unlikely. If an agreement is not reached and ratified by 31st December, the UK and the EU could introduce import charges on each other’s goods and, according to the Office for Budget Responsibility, leaving the EU customs union and single market without a trade deal could lead to a 2% fall in national income next year.
 
Industry data highlighted that UK grocery spending surged to a record high of nearly £11bn in November, as the second national lockdown came into effect and consumers began stocking up for Christmas. According to the latest grocery market share figures from Kantar, a total of £10.9bn was spent in supermarkets in November, the single largest month ever. Take-home grocery sales surged 11.3% in the 12 weeks to 29th November, mainly driven by the second national lockdown, which caused non-essential shops, as well as pubs and restaurants, to shut. Online sales also benefited, with the share of overall online market sales reaching a record 13.7% in November. Amid individual grocers, Sainsbury’s sales were up 10.8% in the latest 12 weeks, while Tesco’s and Morrisons’ rose 10.4% and 13.7%, respectively.
 
In the US, hiring slowed significantly in November, as the nation struggled with a surge in Coronavirus cases. According to the Labor Department, employers added just 245,000 jobs in November, failing to meet economists’ predictions. The jobless rate also dropped to 6.7% from 6.9% a month earlier, partially because many people stopped seeking work. The report comes as several key virus relief programmes, such as unemployment benefits, are set to expire at the end of December. Analysts highlighted the need for Congress to approve further stimulus in order to prevent the economic recovery from stalling. According to a recent report by the Century Foundation, unless lawmakers approve additional fiscal stimulus, around 12 million people are to lose access to unemployment benefits at the end of December, with more than four million people already cut off. Although the US has regained nearly half of the jobs lost this spring during lockdowns, about 10.7 million people remain unemployed, almost 40% of whom have been jobless for more than six months.
 
Japan’s Prime Minister has announced a fresh round of stimulus for the Japanese economy. The 73.6tn yen (US$708bn) package is expected to include subsidies for green investment and spending on digitalisation, with the aim of pulling the country out of its economic slump caused by the pandemic. Although Japan’s economy slowly started to rebound during the third quarter, revised data suggests that the country’s economy suffered its worst post-war contraction during the second quarter, falling by 8.2%. Furthermore, despite the economy growing by 5.3% in the third quarter, many analysts expect Japan’s recovery to be slowed due to a third wave of Coronavirus cases. Around US$384bn of the stimulus package will come in the form of direct spending, including extensions of subsidy programs focused on promoting domestic travel and stimulating consumption. The deal will also include a US$19.2bn fund to encourage carbon neutrality by 2050, US$9.6bn to accelerated digital transformation and US$14.4bn in subsidies to help restaurants hurt by the pandemic.

According to official data, China’s factory activity rose at its fastest pace in over three years in November, as the nation continued its recovery from the Coronavirus pandemic. The Purchasing Managers’ Index (PMI), has significantly rebounded following tight measures to curb the virus earlier in the year, coming in at 52.1 this month. The figure was higher than October’s reading of 51.4 and brings the PMI data back to levels not seen since September 2017, boosted by improvements in both domestic and external demand. The non-manufacturing PMI on the other hand, came in at 56.4, marginally higher than October’s figures, however, still signalling further recovery in the services sector.
 
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Socioeconomic uncertainties dictate global markets
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