Market Review December

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 (%)*

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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 (%)*

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 (%)*

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*Source: Lipper to 31 December 2020, total return. Indices rebased to zero at 30 November 2020.

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