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Last Week in the City: Biden boosts US virus response

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 22 January 2021.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 22 January 2021.
Garry white employee

by
Garry White

in Features

22.01.2021

Joe Biden was inaugurated as US President and signed numerous executive orders to boost the Covid-19 response and reverse some of Donald Trump’s moves on the environment. Markets were pleased by the scope of his proposed stimulus package – and supportive comments by his nomination for Treasury Secretary, former Federal Reserve Chair Janet Yellen. However, the resurgence of the infection in China and concern over the appearance of new variants of the infection tempered this enthusiasm.

The FTSE 100 fell 0.9% over the week, with the more UK-focused FTSE 250 little changed by the middle of Friday’s trading session.

Covid-19

Janet Yellen, the economist picked by Joe Biden to run the US Treasury, said America needs to “act big” to revive its flagging economy and protect itself against long-term scarring from Covid-19 with a major stimulus package. The former chairman of the US Federal Reserve underlined the new administration’s determination to press ahead with plans to boost government spending, arguing to a Senate committee that the benefits of action by Washington outweighed the costs.

Changes brought on by Covid-19 are likely to become permanent. Investment company Aviva said it will close offices across the UK and allow staff to work from home, beyond the pandemic. The insurer said the plans would not lead to job cuts and people could still work from an office if they would rather. We examine the property consequences of the pandemic here.

Vaccines

Science may be about to score its biggest victory against Covid-19 since it emerged in Wuhan at the end of 2019. Johnson & Johnson’s one-shot vaccine should speed-up the economic recovery and Phase 3 trial data is about to be sent to regulators. Garry White looks at this significant achievement here.

People in England in their 70s, and those listed as clinically extremely vulnerable, started receiving offers of a Covid-19 vaccine this week. More than five million people – from priority groups three and four – will be invited to have the jab.

Infections

The UK’s chief scientific adviser Sir Patrick Vallance said that that Covid-19 variants were a “real issue of concern”.

Beijing launched mass Covid-19 testing in some areas on Friday, while Shanghai was testing all hospital staff as China battles its worst outbreak of the disease since March. The upsurge, once again, comes ahead of the Lunar New Year holiday, which sees hundreds of millions of people leave cities in order to visit their families in more rural parts of the country.

Top US infectious disease expert Dr Anthony Fauci said that, based on recent seven-day averages, Covid-19 infections may be about to hit a plateau in the country.

The European Commission proposed that travel to "dark red" Covid-19 hot spots will be discouraged after a meeting to discuss the mounting challenge from more infectious virus variants. The Commission urged countries not to close their borders to maintain the free market.

Economics

The mounting cost of the pandemic can clearly be seen in UK government borrowing figures, which hit £34.1bn last month – the highest December figure on record. It was also the third-highest borrowing figure in any month since records began in 1993, the Office for National Statistics said. Borrowing for this financial year has now reached £270.8bn – an increase of £212.7bn in a year. The independent Office for Budget Responsibility (OBR) has estimated that borrowing could reach £393.5bn by the end of the financial year in March.

Britain's third national lockdown has sparked the sharpest fall in business activity since May 2020, with services companies hit hardest. A preliminary "flash" IHS Markit/CIPS UK Composite Purchasing Managers' Index (PMI) fell to 40.6 in January, down from 50.4 in December. The drop below the ‘50’ threshold for growth was bigger than any economist forecast with a consensus view at 45.5.

Covid-19 infections are still rising. Markets now need to discount a longer period of restricted activity and monitor the progress being made with vaccinations. We look at the continuing damage caused by the virus here.

Geopolitics

Lady Gaga sang the Star-Spangled Banner to a near-empty National Mall on Wednesday, as Democrat Joe Biden was inaugurated as the 46th president of the United States of America. Social-distancing measures kept most people away. The recent storming of the Capitol building by Trump supporters resulted in more US soldiers being placed on the streets of Washington DC during the ceremony than are currently deployed in Afghanistan and Iraq combined. The day passed without trouble.

President Biden signed fifteen executive orders as soon as he entered the Oval Office. The first of these boosted the federal response to the Covid-19 pandemic and others reversed the Trump administration's stance on climate change and immigration.

Donald Trump snubbed the inauguration and scuttled off to Florida early in the morning, ensuring he was at his Mar-a-Largo resort before the day’s events started. Mr Trump now faces an historic second impeachment trial in the Senate for inciting the 6 January Capitol attack. The trial is now expected in mid-February after Senate Republican Leader Mitch McConnell proposed pushing back the start of the trial by a week or more to give the former president time to review the case and prepare his legal team. We look at the impeachment process and the problems Donald Trump has created for the Republican Party here.

The European Union has been hit hard by the pandemic – and a recovery plan is being put in place. Neverthesless, internal politics in the bloc remains complex, we take a look here.

Technology

Big tech companies look like they will face increasing regulation in the future and there was a significant development in an important test case in Australia. Alphabet threatened to remove its Google search engine from the country over the nation's attempt to make the tech giant share royalties with news publishers. In what is seen as a global test case for how governments could seek to regulate big tech companies, Australia is introducing a world-first law to make Google, Facebook and potentially other tech companies pay media outlets for their news content. Australian prime minister Scott Morrison said the country would not yield to “threats”.

Retail

British retail sales saw their largest annual fall in history over the course of 2020. Sales fell by 1.9% compared with 2019, the largest year-on-year fall since records began in 1997. Clothes shops were hit hard, with a record annual fall of more than 25%.

The UK’s retail sector is expected to see 200,000 job losses this year, as Covid-19 restrictions continue to affect the industry. The latest research from the Centre for Retail Research (CRR) showed that an average of 320 stores were shuttered every week in 2020.

However, there were some bright spots in the sector. The John Lewis Partnership raised its full-year guidance after sales across Black Friday and Christmas “held up better than anticipated”. The eponymous department store and Waitrose supermarket owner said it now expected its profits to be ahead of the guidance it provided in September, when management forecast a small loss or a small profit for the 2020/21 period.

High-end department store Selfridges endured the “most difficult year” in its 113-year history after profits dropped 10% despite continually investing in online operations. Managing director Anne Pitcher said the success of the business in 2019 “allowed us to be so resilient in 2020”.

Next has reportedly pulled out of the bidding for TopShop as the auction of Sir Philip Green’s former high street empire Arcadia enters its closing stages. The move surprised observers, coming a matter of days after Next and a handful of rivals tabled final offers for TopShop. A separate process is being run for other Arcadia brands such as Burton and Dorothy Perkins.

Autos

Nissan said Brexit had given the company an edge, as the Japanese carmaker said it will buy more batteries from within the UK to avoid tariffs. The owner of the UK’s largest car factory, in Sunderland, also said it would push ahead with the production of a new version of its Qashqai SUV this year – after it delayed the new model as the coronavirus pandemic wrought havoc on car sales and production.

Volkswagen faces a fine of more than €100m for missing EU targets on carbon dioxide emissions from its 2020 passenger car fleet, the world’s largest carmaker revealed.

Energy

Oil prices edged lower on concerns the spread of Covid-19 in China will slow demand growth there. Brent crude futures fell 0.4% over the week to trade at about $54.90 a barrel.

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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