US
Stocks ended the holiday shortened week with mostly mixed results. The Dow rose 0.1%, the S&P 500 declined 0.2%, and the Nasdaq Composite increased 0.4%. Tech-heavy Nasdaq and the smaller-cap benchmarks reached new intraday highs, while the large-caps lagged. The yield on the benchmark 10-year Treasury note fell slightly for the week to 0.907%. President Trump objecting and vetoing the $900 coronavirus relief package was one of the major factors in canceling the ‘Santa Rally’ for stocks, while increasing coronavirus cases/deaths along with the discovery of new variants of COVID-19, did not help the case.
Consumer confidence fell to a four-month low (88.6 vs 92.9 in November), while weekly jobless claims declined more than expected but remained high at 805,000. On a positive note, over 1 million people received the first dose of the new vaccine last Wednesday.
The transition week from 2020 to 2021 will be a light one in terms of economic reports. The US labor market report will be delayed until January 8, report on home prices will be released on Tuesday, home sales on Wednesday and weekly unemployment claims on Thursday.
EUROPE
The European markets ended the week mostly flat as the UK-EU trade deal reversed some of the losses caused due to the emergence of the new COVID-19 variant. The European STOXX 600 gained 1.21%, Germany’s DAX closed 0.74% higher, while UK’s FTSE 100 closed with a modest 0.10% gain. The Euro closed at 1.22 and the GBP at 1.357 against the US dollar.
The UK and the EU finally agreed on a post-Brexit trade deal, with the announcement coming after UK markets closed. However, the deal still must be approved by all EU member states. The Office for Budget Responsibility has forecast that Brexit will cost the UK 4% of its GDP over 15 years. Business confidence in Germany rose more than expected in December to 92.1 (vs 90.9 in previous month), However renewed lockdowns and restrictions may result in further economic contraction in the coming months.
Moving to COVID-19, UK has imposed the toughest restrictions in most parts of the country to curb the highly contagious new variant. Many nations have placed travel restrictions to and from the UK, while the EU countries introduce tight restrictions due to soaring infection rates. Pfizer said they would supply 12.5 million doses to the EU by the end of the year, while Moderna will be supplying 160 million doses with delivery starting early 2021.
JAPAN
Japanese stocks recorded modest losses this week. The Nikkei 225 Stock Average fell 0.4%, while the large cap TOPIX was mostly flat. The yen closed at 103.572 versus the US dollar. Prime Minister Yoshihide Suga does not want the Yen to appreciate beyond 100 per US dollar, suggesting the Finance Ministry intervene to weaken the Yen and support exports.
The Bank of Japan has not made any further changes to its monetary policy at the December meeting but have announced a review with results expected in March 2021. The BOJ will be increasing its ETF holdings annually. It is expected to add JPY 7 trillion this year with an upper limit of JPY 12 trillion.
The Ministry of Health will be adopting a three-tier coronavirus vaccine plan in February, which will prioritize health care workers, elderly people, and those with prevailing illnesses. Also, the country will temporarily ban non-resident foreign nationals from entering the country (from Dec 28) due to the detection of a new, highly infectious variant of the coronavirus.
CHINA
The Shanghai Stock Exchange Composite Index was down 1.0% over the week, while the large-cap CSI 300 Index was mostly flat. The reason for this drop was mainly because the Trump administration published a list of Chinese and Russian companies that it alleged had ties to their countries’ militaries.
China’s top antitrust regulator has launched an investigation into the e-commerce giant Alibaba Group. The authorities have also summoned Ant Group, the world’s largest Fin-Tech company, to a meeting regarding financial regulations.
OIL
Crude oil prices have mostly gained due to a successful Brexit deal and a broad dollar weakness, but rising COVID-19 cases and restriction by some nations have capped gains. WTI crude ended the week at $48.23 and Brent at $51.29 per barrel. OPEC+ will be increasing oil production by 500,000 barrels per day from February, as the group agreed to cut output from the initially planned 2 million due to reduced fuel demand. The number of rigs drilling crude oil in the US rose by 1 to 264 rigs for the week.
GOLD
The news of the UK-EU deal did not affect the market’s broad appetite for risk and as a consequence no significant change in gold price. This could be partially due to the offsetting effect of the discovery and general uncertainty around the new COVID-19 strain. Also, a bullish sentiment in the equity markets coupled with a weakening dollar provided overall mixed results. Gold finally closed at $1,879.47/oz.
SO, TO SUM UP …
The shortened trading week proved to be very uncertain for investors in general. We could only hope for the situation to get better next year, but having a disciplined approach and keeping a long term perspective certainly helps. Systematic investing and rebalancing portfolios will be necessary to negotiate volatility and achieve stable gains.
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