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07 December 2020

Vaccine proves a shot in the arm for worldwide markets

Global markets have been making consistent gains over the past week, as further promising vaccine news boosted general sentiment among investors. The FTSE 100 added 2.61% as the UK became the first country in the world to approve the vaccine from US pharma giant Pfizer and German partner BioNTech, with vaccinations due to begin early this week. The US S&P 500 gained 0.75% amid hopes Congress could progress towards a new Coronavirus fiscal stimulus package.
 
According to the Organisation for Economic Co-operation and Development (OECD), the UK economy will be among the hardest hit by the Coronavirus crisis, as predictions suggest that by the end of 2021 it will be more than 6% smaller than before the pandemic. Among the world’s major economies, only Argentina is predicted to do worse. On the other hand, the OECD estimates that the overall global economy will be back to pre-pandemic levels by then. Although there was some optimism for next year, the report highlighted that following new virus outbreaks and measures, it is likely there will be further declines in economic activity in the short term, specifically in Europe. Nevertheless, progress with vaccines and treatments have lifted expectations and now for the first time since the pandemic began, there is hope for a brighter future.
 
For the UK, the OECD predicts that the economy will contract in 2020 by 11.2%, followed by growth of 4.2% and 4.1% in the next two years. Unemployment is estimated to rise to an average of 7.4% in 2021, highlighting a sharp increase from the pre-pandemic rate of 4%. The report also underlined the significance of the UK concluding a trade deal with the EU by the end of the year, in order to avoid serious additional economic disturbances in the short term and a negative impact on trade, productivity and jobs in the longer term.
 
Looking further afield, China has introduced strict new laws which restrict the export of controlled items, primarily focusing on military technologies and other products that might harm its national security. Exporters must now apply for a license in order to export any items listed on a control list or subject to temporary controls. The law will impose penalties of ten times the value of the offending transactions, up to US$760,000. The new measures are believed to be in response to similar actions taken by the US, which saw Tik Tok, Huawei and Tencent take a hit after Washington’s Chinese technology clampdown. Trade tensions between the world’s two biggest economies initially began in 2018 but have ramped up in the last year and, as the new regulations are due to come into effect on Tuesday 8th December, there are concerns that this could escalate the ongoing trade war with the US even further.

After the Chairman of the US Federal Reserve started a fresh appeal for lawmakers to provide more government support to the economy, a bipartisan group of US senators has proposed a US$908bn spending package to break the deadlock on fiscal stimulus. The proposal, led by Virginia Democrat Mark Warner and Maine Republican Susan Collins, reflects the growing anxiety in Washington over the state of the economy. Negotiations on a new stimulus aid package paused before the November election and are yet to resume. Although the United States’ economic recovery has been faster than expected, the labour market is still ten million jobs below pre-pandemic levels. The deal would allocate US$288bn into small business aid, provide US$180bn in unemployment benefits and offer US$160bn to state and local governments. It is unclear whether the bipartisan plan will be enough to deliver a breakthrough as it still falls short of a stimulus package worth more than US$2tn initially passed by Democrats in September. However, it is higher than the US$500bn package proposed by Republicans.

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 proves a shot in the arm for worldwide markets
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