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21 December 2020

Vaccine Optimism Boosts Positive Market Sentiment

Ben Staniforth, Investment Research Analyst

Global markets delivered mixed results last week, as vaccine rollouts continued to boost sentiment around the world. The FTSE 100 gained 0.16% while the US S&P 500 added 1.81%, with investors taking positives from ongoing US stimulus developments and persisting Brexit deal optimism.

According to the Office for National Statistics (ONS), there were 819,000 fewer workers on UK company payrolls in November than at the start of the pandemic, with hospitality being the worst-hit sector. The unemployment rate rose to 4.9% in the three months to October, with the total number of jobless people reaching 1.7 million. Although there were significant job losses in other sectors, such as manufacturing and aviation, the hospitality industry suffered the most, as bars and restaurants had to close for months during the first lockdown and currently still face strong restrictions. Redundancies also increased by 217,000, hitting a record 370,000 in the three months to October, with the figure expected to continue to rise. Although the furlough scheme will save many jobs over the winter months, further restrictions and a messy Brexit transition period are likely to cause further job losses in the coming months.

The ONS also revealed that the UK’s inflation rate fell significantly to 0.3% in November from 0.7% in October. Lower prices for clothing, food and non-alcoholic drinks made the biggest contribution to the fall, however, games, toys and hobbies increased in price, partly offsetting the declines. The figures reflect the fact that most of the UK was in some form of lockdown during the month, and analysts also pointed out that retailers offered bigger discounts than usual this year during the Black Friday Sales. The latest Consumer Price Index figures are evidence that shop prices are falling in the run-up to Christmas, as retailers aim to clear stock and deal with a deepening High Street crisis.

Despite a recent surge in Coronavirus cases, prospects for the US economy have improved since September, according to America’s central bank. The Federal Reserve (Fed) now expects growth of around 4.2% next year, while the unemployment rate is forecasted to fall from 6.7% to 5%. The update came as US medical authorities begin to distribute vaccines against COVID-19. However, Fed Chair Jerome Powell warned that the coming months would be challenging, as the US battles another surge of infections, with businesses and unemployed likely to suffer from further difficulties. Nevertheless, optimism for next year remains robust with hopes that another fiscal stimulus and the widespread distribution of the vaccine would drive a strong rebound in the second half of 2021.

Japan’s Prime Minister has announced a fresh round of stimulus for the Japanese economy. The 73.6tn yen (£530bn) package is expected to include subsidies for green investment and spending on digitalisation, with the aim of pulling the country out of the 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 £284bn 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 £14.2bn fund to encourage carbon neutrality by 2050, £7.1bn to accelerate digital transformation and £10.6bn in subsidies to help restaurants hurt by the pandemic. 

Official data showed that China’s retail sales grew in November, as consumers continued their return to spending with the nation’s COVID-19 outbreak predominantly under control. According to the National Bureau, retail sales rose 5% year-on-year last month in line with analysts’ forecasts, with the figure up from a 4.3% growth in October. Meanwhile, the urban unemployment rate, a key concern with a large number of graduates entering the markets this year after the pandemic hit, fell for a fourth consecutive month to 5.2% in November. However, experts predict the figure to be higher due to a large number of people in China’s informal workforce.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Vaccine Optimism Boosts Positive Market Sentiment
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