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Last Week in the City: Best month for equities – ever!

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 27 November.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 27 November.
Garry white employee

by
Garry White

in Features

27.11.2020

Global equities had their best month on record in November, boosted by positive announcements on the development of Covid-19 vaccines – and hopes that Joe Biden’s new administration will unleash more economic stimulus next year. The MSCI World index, which tracks shares in 49 countries, hit a record high on Wednesday.

However, over the week, the FTSE 100 underperformed other global indices. The blue-chip index was little changed over the week by mid-session on Friday – held back by doubts over the effectiveness of AstraZeneca’s Covid-19 vaccine and concerns over the progress of post-Brexit agreements between the UK and European Union. The more UK-focused FTSE 250 fell 1.4%.

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Listen to our Research team and Investment Managers discuss hot market topics.

The US election muddle: In this episode, we discuss the results of the US presidential election.

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Covid-19

AstraZeneca is likely to run an additional global trial to assess the efficacy of its Covid-19 vaccine using a lower dosage. The news comes as AstraZeneca faces questions about its success rate that may hinder its chances of getting rapid US and European Union regulatory approval.

Most of England will be in the two toughest levels of measures when the national lockdown ends next week. The new Covid-19 tier restrictions will mean 55 million people remain banned from mixing with other households indoors from 2 December. The system will be regularly reviewed, with the first scheduled for 16 December, so an area's tier level may change before Christmas. To read the government’s Winter Plan to deal with Covid-19 click here.

World leaders wish to stop the debilitating cycle of the Covid-19 infection. Vaccines will allow a resumption of growth in 2021, but there is still likely to be economic damage ahead. We look at the issue in this week's article, Racing for a vaccine to unlock the impasse.

Since March 2020, markets have got used to running on an explosive mixture of central bank money creation, massive government bond buying, and huge fiscal stimulus. But spending is about to slow. But is the money to deal with Covid-19 running out? We look at the potential implications for markets in this week's article, Is the money to deal with Covid-19 running out?

US election

After much prevarication, Donald Trump finally said that he will leave the White House if Joe Biden is formally confirmed as the next US president. However, he also said that "this race is far from over" and refused to concede, citing unsubstantiated claims of voter fraud. Individual states are currently certifying their results after Mr Biden was projected as the winner with an unassailable lead in the Electoral College. Electors will meet to formalise the result on 14 December, with Mr Biden due to be sworn in as president on 20 January.

Meanwhile, President-elect Joe Biden is expected to nominate former Federal Reserve Chair Janet Yellen as Treasury secretary as he shapes his cabinet ahead of his inauguration next year.

The Trump administration is making moves to secure its legacy. As the transition to the Biden presidency gets underway, members of the current administration are ‘setting obstacles’ to ensure changes made in the Trump years can’t be easily reversed. Garry White looks at the politics on Capitol Hill in this week's article, Trump administration moves to secure its legacy.

Brexit

European Union (EU) chief negotiator Michel Barnier was due to travel to London on Friday as he tries to clinch an eleventh-hour Brexit trade deal. Both sides are calling on each other to compromise to clear the way for a trade deal that would avoid a so-called “no-deal” Brexit. The three areas where agreement is yet to be reached are fisheries, state aid and future dispute resolution.

The EU’s assessments of whether to grant market access for UK banks and other financial companies will not be completed in time for January, reports suggested. These discussions are separate from the main agreements currently being negotiated between Mr Barnier and his British counterpart David Frost. The EU grants access to foreign financial companies if it deems their home rules to be “equivalent” to the EU’s own regulations. Britain is likely to be granted equivalence, but the assessments needed to support the decision may not be completed in time for January – and stop-gap measures are being considered. Britain's unfettered access to EU markets under the transition arrangements ends on 31 December.

UK Spending Review

Chancellor Rishi Sunak set out the UK government’s public spending plans for the new financial year.

Mr Sunak forecasts that the UK economy will shrink by 11.3% this year – with government borrowing reaching almost £400bn. The Chancellor then announced a series of support packages to save jobs and support businesses. Measures included:

  • To boost skills, £291m was allocated to pay for more young people to go into further education; £1.5bn to rebuild colleges; and £375m to deliver the prime minister’s Lifetime Skills Guarantee.
  • A public sector pay freeze, but most NHS workers and those earning less than £24,000 will still get an increase.
  • Unemployment is expected to reach 7.5% next spring, with 2.6 million people out of work.
  • Overseas aid budget will be cut by about £4bn.
  • A new £4bn "levelling up" fund will pay for upgrading local infrastructure across the UK.

Ambitious plans to roll out gigabit-speed broadband to every home in Britain by 2025 were reined in by Mr Sunak. The government now targets a "minimum of 85% coverage" by that date. Garry White explains the importance of the broadband strategy to the UK’s future growth prospects in the article, Britain’s economy needs better broadband now.

You can read the government’s full Spending Review policy documents here.  

Geopolitics

Tensions between China and Australia increased after Chinese regulators unveiled plans to impose heavy tariffs of as much as 212% on Australian wines after finding preliminary evidence of dumping. China announced an investigation into some Australian wine imports in August, following a complaint from the China Wine Industry Association. Australia upset China this year by calling for an investigation into the origins of the Covid-19 pandemic.

Arguments continue over the extent of public spending and fiscal stimulus needed to continue to counter the recession. The three Presidents at the top of the European Union are pressing the member states to ratify the seven-year budget plans for 2021-7 and the €750bn borrowing facility, now called Next Generation EU. We look at the budget negotiations in this week's article, Europe waits for the vaccine and goes green.

Sony warned the Japanese government it may have to shift manufacturing out of the country unless rules on renewable energy are relaxed, as it tries to meet the green energy promises of customers such as Apple. Japanese businesses are under pressures to reduce the carbon footprint of their manufacturing facilities substantially as Apple, Facebook and other technology groups seek to shift their global supply chains to 100% renewable power.

Technology

Major Apple supplier Foxconn is moving some iPad and MacBook assembly to Vietnam from China at the request of Apple, reports suggested. The company is trying to diversify production to minimize the impact of a US-China trade war.

Energy

Hopes of a bounce-back in economic activity as progress is made on Covid-19 vaccines and the expectation that inflation will rise turbo-charged the oil price this week. Brent crude futures were up 7.1% over the week by mid-session on Friday, trading at about $48.20 a barrel. Oil prices have now risen for four consecutive weeks.

Opec and allies including Russia are leaning towards delaying next year’s planned increase in oil output to support the market during the second wave of Covid-19, press report suggested ahead next week’s Opec+ meeting.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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