US –
In regard to the US equities, all major indexes hit new highs on Wednesday but pulled back to end the week (Dow closed -0.6%, S&P 500 closed -1.0% and NASDAQ closed -0.7%). The energy sector performed well as Brent oil prices crossed USD 50 per barrel for the first time since the pandemic started while Tech stocks underperformed (antitrust suit against Facebook). Talks between Republicans and Democrats over another round of fiscal stimulus continues to drag on, proving detrimental for stocks. Treasury yields dropped through the week due to uncertainty over stimulus talks in the US and Brexit trade negotiations. US workers claiming unemployment insurance for the first-time exceeded estimates, but on the other hand, consumer sentiment posted a surprising increase in December.
The FDA released data confirming that the Pfizer/BioNTech vaccine was 95% effective while severe adverse reactions from the vaccination were limited to younger participants only. The FDA panel recommended emergency use authorization for the Pfizer vaccine; mass distribution could begin as early as the following week.
EUROPE –
European STOXX 600 Index ended the week 1.0% lower, Germany’s DAX Index fell 1.39% and the UK’s FTSE 100 Index was flat. Rising numbers of coronavirus cases, US fiscal stimulus delays and an uncertain post-Brexit trade deal were the main reasons behind this trend. Merkel urged states to toughen measures while the UK begin mass vaccinations on Tuesday, starting with elderly people and care workers.
Talks between Boris Johnson and Ursula von der Leyen on Wednesday failed to break the deadlock over a UK-EU trade deal. Post-Brexit trade talks could go right to the wire after the British Prime Minister and the EU Commission President agreed to “go the extra mile” and continue discussions beyond Sunday’s initial deadline.
The ECB increased the Pandemic Emergency Purchase Program by EUR 500 billion to EUR 1.85 trillion and extended it for another nine months to March 2022. They also agreed to provide banks with more ultra-cheap loans until June 2022, extending this program by a year. GBP closed the week against the US dollar at 1.3224 and EUR at 1.2112.
CHINA –
After a second major index provider excluded several Chinese firms from its indexes following a Trump administration executive order, China’s equities dropped on renewed tensions with the US (other index providers are deliberating whether to do the same). China’s November exports climbed 21.1% from a year earlier, marking the strongest growth since February 2018. Foreign inflows into the country’s bond market rose strongly last month to USD 15 billion. The RMB was mostly flat for the week, slipping 0.2% against the U.S. dollar. The yield on China’s 10-year sovereign bond rose 2 basis points to 3.32%.
JAPAN –
Japanese stocks displayed a mixed performance for the week. The Nikkei 225 Stock Average declined 0.4% (YTD ahead 12.7%). The yen was mostly unchanged against the U.S. dollar and traded near JPY 104 on Friday. Prime Minister Suga announced a third stimulus package totalling JPY 73.6 trillion. About 52 trillion of the stimulus to be used for economic changes, and balance to curb the latest outbreak and support disaster management.
GOLD –
Gold prices ended the week roughly in-line with where they started. Falling equity markets pushed gold to jump sharply on Monday (spot prices had surged to roughly $1865/oz at one point) as investors moved to gold and other safe havens to limit their exposure. Come Wednesday, investors started selling off and gold’s spot price fell as low as $1825 before finding buyers again.
“A DIFFICULT BALANCING ACT”
Positive news from the vaccine has helped investors look beyond the current pandemic situation. Cyclical sectors that were gloomy for the most part of 2020, now see the light of day. However, uncertainty in the markets will remain until countries ultimately reach herd immunity.
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