Macro

Market Reviews – GBP (December 2020)

A roundup of factors affecting regional equity and bond markets over the month
January 2021
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Risk Disclaimer 

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management.

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

UK

The FTSE All-Share Index returned 3.9% in sterling terms during December. Towards month-end, the UK and EU agreed a deal to allow tariff- and quota-free trade in goods, avoiding a no-deal Brexit. This was partly overshadowed by a fresh surge in Covid-19 cases as a more contagious variant of the virus took hold in the UK. The government tightened restrictions once more to curb the virus’s spread and pressed on with its vaccination programme. The Purchasing Managers’ Index (PMI) gauge of service sector activity remained in contraction territory in December. The manufacturing PMI rose to its highest level in three years amid stockpiling ahead of the end-of-year Brexit deadline. In terms of sectors, industrial metals & mining (26.1%) and industrial transportation (25%) outperformed, while pharmaceuticals & biotechnology (-4.0%) and personal goods (-3.4%) lagged.

FTSE All-Share Total Return (TR) GBP (%)*

December market review - UK Graph

Europe

The FTSE World Europe ex-UK Index returned 2.3% in sterling terms. In contrast with a continuing expansion in manufacturing activity, eurozone survey data suggested further contraction in the service sector in December owing to Covid-19 restrictions. Rising coronavirus infections in eurozone countries such as Germany and the Netherlands weighed on the near-term economic outlook. The European Central Bank raised quantitative easing by €500bn and extended emergency measures to help eurozone banks as it cut eurozone growth forecasts. The EU and UK averted a no-deal Brexit, agreeing to tariff- and quota-free trade in goods. Separately, the EU also unveiled an investment accord with China, removing some of the obstacles hindering investment by EU firms in the country. The European Medicines Agency approved the Pfizer/BioNTech Covid-19 vaccine, enabling coronavirus inoculations to begin across the EU.

FTSE World Europe ex UK TR GBP (%)*

December market review - Europe Graph

US

The FTSE All-World North America Index gained 1.6% in sterling terms over December. Although US economic data was generally weak, risk appetite was supported by fresh stimulus measures along with optimism surrounding the rollout of Covid-19 vaccines. Following months of wrangling, the Senate belatedly agreed a $900bn Covid-19 relief package, which outgoing President Trump then signed into law. US weekly jobless claims were on the increase as curbs designed to counter the spread of Covid-19 weighed on the economy. Retail sales, consumer spending and personal income for November all fell versus the prior month. New US daily Covid-19 infections reached a fresh peak in early December. The US Food and Drug Administration issued an emergency approval for the Pfizer-BioNTech coronavirus vaccine, enabling inoculations to begin across the US.

FTSE All-World North America TR GBP (%)*

December market review - US Graph

Japan

The FTSE Japan Index returned 1.7% in sterling terms during December. The Japanese government unveiled its third stimulus package of 2020 as it strove to manage the economic fallout from Covid-19, with around $294bn of additional spending, including investment targeting digital and green technology. The Bank of Japan’s (BoJ) Tankan survey pointed to a notable improvement in confidence among large Japanese manufacturers in the fourth quarter, raising hopes of an upturn in exports. However, a substantial surge in Japanese coronavirus cases during December raised the prospect of tighter restrictions and restrained the near-term outlook for the domestic economy. The BoJ extended its coronavirus lending programme by a further six months to September 2021 to support struggling businesses. Japan’s core consumer prices fell 0.9% in November, the sharpest price decline in a decade.

FTSE Japan TR GBP (%)*

December market review - Japan Graph

Emerging Markets

The FTSE All-World Emerging Index returned 3.7% in sterling terms over December. Turkey (17.7%) outperformed as it continued to rebuild investor confidence with its new strategy to tame inflation. Turkey’s central bank raised interest rates from 15% to 17% in December. Brazil (10.8%) and Russia (8.8%) were buoyed by firmer oil prices. India (7.4%) benefited from robust foreign investor inflows and hopes that it could benefit from the rollout of Covid-19 vaccines. Thailand (1.7%) was held back by concerns surrounding a resurgence in domestic coronavirus cases. Though outperforming over 2020, China(0.4%) lagged the market in December. The Trump administration added 60 Chinese firms to its so-called US export blacklist, including the likes of chipmaker Semiconductor Manufacturing International Corporation. Chinese economic data for November indicated strong year-on-year growth, though December’s survey data suggested some moderation.

FTSE All-World Emerging TR GBP (%)*

December market review - EM Graph

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 6.5% in sterling terms, outperforming the global average. Korea (14.2%) and Taiwan (7.7%) were buoyed by strong returns from their respective technology sectors, which investors viewed as well placed to benefit from a potential upturn in global growth in 2021 on the back of coronavirus vaccine rollouts. Hong Kong (2.9%) was held back by heightened US-China trade tensions, with the Trump administration adding 60 Chinese firms to its so-called US export blacklist, including the likes of chipmaker Semiconductor Manufacturing International Corporation. Singapore (0.1%) lagged amid subdued performance from its financial sector. Chinese industrial output and retail sales grew strongly in November year on year. Official Chinese economic survey data pointed to some modest slowing in the pace of growth for manufacturing and services activity in December.

FTSE World Asia Pacific ex Japan TR GBP (%)*
December market review - Asia Pacific ex Japan graph

Government Bonds

Global government bond yields were mixed over the month. Rising Covid-19 cases in the US and Europe presented further near-term economic challenges, though risk appetite continued to be buoyed by optimism surrounding coronavirus vaccines. US economic data releases during December suggested some weakness,with rising jobless claims and flagging consumer demand. President Trump signed off on a fresh $900bn coronavirus relief package following Senate approval. European economic data was mixed, with eurozone survey data suggesting further contraction in the service sector. The European Central Bank raised quantitative easing by €500bn and extended emergency measures to help eurozone banks as it cut eurozone growth forecasts. The UK and EU avoided a no-deal Brexit, agreeing a deal to allow tariff- and quota-free trade in goods.

Corporate Bonds

Global corporate bonds generated positive returns over December. The month was denoted by continuing fiscal and monetary accommodation as rising Covid-19 cases in the Northern hemisphere weighed on economies. Meanwhile, coronavirus vaccination programmes got underway in the US and continental Europe. Following months of wrangling, the Senate agreed a $900bn Covid-19 relief package, which outgoing President Trump then signed into law. The European Central Bank raised quantitative easing by €500bn and extended emergency measures to help eurozone banksas it reduced eurozone growth forecasts. The UK and EU agreed a deal to allow tariff- and quota-free trade in goods, avoiding a no-deal Brexit. Japan’s Nippon Telegraph and Telephone (NTT) mounted a ¥1trn ($9.6 billion) bond sale, partly to finance its tender offer of wireless business NTT Docomo.

*Source: Lipper to 31-Dec-20, total return. Indices rebased to zero at 30-Nov-20.

Risk Disclaimer

Views and opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management.

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

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