December concerns over baubles and bubbles
As the world faces up to a not-so-jolly Christmas season, it may be surprising to learn that sentiment across the global economy was reported to be quite strong last week. Admittedly, this is mostly driven by strong manufacturing data and not the services sector, which relies so much more on social proximity. Nevertheless, the current economic environment combined with the announcement of COVID vaccinations becoming an imminent reality (if only for those vulnerable) had markets starting December on an upbeat note. Following the exceptionally strong investment returns in November, it would unrealistic to expect 2020 to close on a traditional ‘Santa Rally’. However, if the European Union (EU) and Britain are able to sort out their political – but not economically relevant – differences over fish, state aid and the governance of the envisaged Brexit deal, then at least the UK stock market could be in for another pre-Christmas upwards bounce.
November review – Santa rally comes early
When investors look back on the COVID-19 crisis in years to come, and recall what a torrid year it was, November will likely stand out as the second turning point. The arrival of not just one but three vaccines with high efficacy to fight the coronavirus, switched markets from their distinct ‘risk-off’ mode of October to an even more marked ‘risk-on’ mood in November, and added fuel to the post-US election rally. Concerns about the near-term economic outlook seemed to all but evaporate. Stock markets spotted the light at the end of the tunnel, with this year’s biggest losers gaining the most in November. The MSCI Europe ex-UK and FTSE All-Share indices returned 13.4% and 12.7%, respectively. Meanwhile, the year’s star performers, Asia ex-Japan and the US, still managed impressive monthly gains of 8.0% and 7.5%. Global value stocks returned 15.1%, outperforming growth, which returned 10.9%. Within fixed income, it was the riskier high yield and emerging markets that outshone the higher quality markets. November was the best month for the global investment community this year.
COVID worsening the UK’s high street headache
The ‘scientific cavalry’, as Boris Johnson likes to put it, has arrived. The UK became the first western country to approve a COVID vaccine for mass use, and authorities are wasting no time rolling it out. 800,000 doses of Pfizer and BioNTech’s celebrated vaccine are expected to be available this week, with Britain’s most vulnerable set to go first, before the remaining 40 million ordered doses are injected into the population over the next year. The government’s scientific advisers stress that the virus is still ever-present, and restrictions will have to remain tight for several months, although the UK’s Deputy Chief Medical Officer, Professor Van-Tam also said that once all on the priority list had been vaccinated (over 50s and vulnerable groups), 99% of fatalities could be prevented. News of the vaccine roll-out undoubtedly brings respite, and hope that Britain’s epidemic will fade as the winter months do.