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11 January 2021

Vaccine Optimism Boosts Global Markets

Global markets started the year by delivering consistent gains, with both the US S&P 500 and FTSE 100 adding 1.88% and 6.10% respectively. Stock markets around the world rose as optimism that mass vaccinations would ensure a rapid global economic recovery was reinforced by signs that Democrats would gain a majority in the US Senate.

Chancellor Rishi Sunak has announced that businesses in retail, hospitality and leisure will receive new grants of up to £9,000 per property in order to help them get through the months ahead. The Chancellor also promised a further £594m for local authorities and devolved administrations to support business not eligible for the grants. Although business groups welcomed the new help, many warned that the money would still not be enough to stop many firms from collapse. Furthermore, the new measures contained no additional support for self-employed people, placing hundreds of thousands of workers under huge pressure, particularly ahead of the self-assessment tax deadline. As England’s lockdown rules are due to be reviewed on 15th February, the Office for Budgetary Responsibility now expects unemployment to peak at 9.7% and predicts the UK economy will have contracted by 11.3% in 2020, the largest decline in 300 years.

Looking further afield, new figures from Caixin showed that China’s manufacturing sector continued to improve in December, albeit at the slowest rate in three months. The headline seasonally adjusted Purchasing Managers’ Index (PMI) fell to 53.0 points in the last month of 2020 from 54.9 in November. Despite the slip, the reading still indicated a healthy factory sector in China, as the nation’s economy continued to recover from the Coronavirus pandemic.

Furthermore, the rate of growth in China’s service industry slowed in December, mirroring the country’s manufacturing sector. The headline seasonally adjusted business activity index fell to 56.3 in December from 57.8 in November. Overall, new business growth still remains solid; however, the most recent dip was blamed on weaker new business growth with only a modest rise in new export sales.

On the other hand, the latest survey results from au Jibun Bank and IHS Markit showed that the Japanese manufacturing sectors ended the year with operating conditions stabilising in December. The headline au Jibun Bank Japan manufacturing purchasing managers’ index rose to the 50 no-change threshold in December from 49.0 in November. This highlighted the highest PMI reading since April 2019, as the sector continued to slowly recover from the damaged operating conditions caused by the Coronavirus outbreak. The survey also indicated that an improvement in the health of the Japanese manufacturing sector was driven by a stabilisation in output levels in December. 

Japan’s service sector also remained subdued in December, as the seasonally adjusted Japan services business activity index dipped slightly to 47.7 from 47.8 in November. As business activity and new orders remained in decline during December due to a further outbreak of Coronavirus infections, private sector activity has now fallen for the eleventh consecutive month.
Vaccine Optimism Boosts Global Markets

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