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Last Week in the City: Vaccine booster for equity markets

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 13 November.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 13 November.
Garry white employee

by
Garry White

in Features

13.11.2020

Markets jumped and investors rotated into out-of-favour, growth-facing sectors following news that a vaccine against the novel Coronavirus may be available by the end of this year. However, gains were tempered later in the week as the number of reported infections in the US and Europe continued to spike.

In America, cases have risen for nine consecutive weeks – a longer run than the March-April wave that was largely in the Northeast and the June-July spike that mostly hit the sunbelt states.

There is also electoral uncertainty in the US, where Donald Trump is attempting all legal means to prevent a Joe Biden presidency. However, markets appear to have formed a view that the next president will be Mr Biden, with actions tempered by a Republican Senate.

The FTSE 100 jumped 6.6% over the week by mid-session on Friday. The FTSE 250 added 7.4%.

Charles Stanley’s Investment Strategy Committee met this week – read its conclusions in our investment strategy update.

What the government review of CGT means for you: In July, chancellor Rishi Sunak wrote to the Office of Tax Simplification requesting a review of Capital Gains Tax. Graeme Dreghorn explains what it means for you here.

the words tax written on a calculator

Covid-19

Markets jumped and investors rotated towards growth-facing equities following news that a vaccine against Covid-19 may be available by the end of this year. Pfizer said its Covid-19 vaccine, developed with German partner BioNTech, was more than 90% effective in preventing infection. The two companies said they had found no serious safety concerns yet and expected a regulatory decision as soon as December. However, there are likely to be bottlenecks in the manufacturing processes of the vaccine and the distribution of the jab is likely to be logistically difficult. The fact that it needs to be refrigerated at -70 to -80 degrees Celsius to keep it stable will add to these challenges.

However, rising infections hit markets at the end of the week. The UK reported 33,470 new cases on Thursday, the highest daily total to date. In the US, the nationwide rise in cases that began in September is now in its ninth week. That’s a longer run than the March-April wave that unfolded largely in the US Northeast, and the June-July upswing that mostly hit the sunbelt states.

The announcement that a vaccine might be available before the end of the month that works and is safe changed everything – and nothing. We explain why in this week's article, What a difference a vaccine makes.

US Presidential election

Joe Biden was announced as the winner of the US election, but Donald Trump has refused to accept the result. Mr Trump launched legal challenges in five key US states, alleging that election officials are counting fraudulent votes, so the official process could be protracted. All disputes must be settled by 8 December. Electors will formally cast their votes in the Electoral College on 14 December, with the official count revealed at the start of January. This means there is now significant political uncertainty in the US.  

On Monday, the US Attorney-General instructed prosecutors to investigate claims of voter fraud – though there appears to be little evidence to support these claims. This led to the resignation of justice department official Richard Pilger on the same day.

What President Biden will mean for markets: Although recounts and legal challenges relating to the election need to be resolved, markets are moving on to considering what a Biden Presidency will mean. Discover more here.

Republican Senate may temper Biden’s green agenda: The ‘green revolution’ remains a priority for Joe Biden, but Garry White thinks a divided government may slow down progress in the move away from oil. He explains why here.

Economics

UK's economy rebounded out of recession between July and September, but growth showed signs of slowing down at the end of the three months. Quarterly growth of 15.5% in July to September was the biggest on record, following a six-month slump induced by the first Covid-19 lockdown. However, growth was weaker in September than in the preceding months, while the UK’s economy is still 8.2% smaller than before the pandemic.

Geopolitics

Britain said China had broken its main bilateral treaty on Hong Kong, warnings that it would consider sanctions as part of its response. A new law imposed by Beijing allowing the disqualification of “unpatriotic” opposition members prompted the entire pro-democracy caucus to announce their resignation. Four sitting legislators were disqualified with immediate effect. Some claimed this move was “the death-knell of Hong Kong’s democracy fight”.

Donald Trump has issued an order banning American investments in Chinese companies the government determines to have ties to the Chinese military. In the order, Mr Trump accused China of "increasingly exploiting" US investors "to finance the development and modernisation of its military". The ban is to go into effect in January and could impact some of China's biggest publicly-listed companies, including China Telecom and Hikvision.

The US Commerce Department halted a ban on TikTok that was due to come into effect on Thursday night. The order would have prevented the app from being downloaded in the US. The Commerce Department delayed the ban "pending further legal developments," citing a Philadelphia court ruling from September, where three prominent ‘TikTokers’ argued the app should be allowed to operate in America.

Asian leaders are due to sign a huge trade deal this weekend that has been nearly ten years in the making – the Regional Comprehensive Economic Partnership (RCEP). It includes the ten members of the Association of Southeast Asian Nations (Asean), plus China, Japan, South Korea, Australia and New Zealand. The members make up nearly a third of the world's population and account for 29% of global GDP. The new free trade zone will be bigger than both the US-Mexico-Canada Agreement and the European Union.

Technology

Apple unveiled its first Mac computers powered by chips of its own design. In June, the company announced it would transition away from the Intel processors it had used since 2006. Apple said the advantages of using the M1 chip included better battery life, instant wake from sleep mode, and the ability to run iOS apps.

Energy

Oil prices fell on Friday, as rising Covid-19 infections sparked worries that any recovery in the global economy will be slow. However, this followed a surge earlier in the week following Pfizer’s vaccine news. Brent crude futures bounced by more than 9% over the week to trade at about $43.10 a barrel by mid-session on Friday.

Financials

Shares in Legal & General fell after the insurance giant kept its final dividend payment for 2020 flat due to the impact of the pandemic and cut its five-year dividend growth target. From 2021, the board of the company – traditionally one of the larger dividend payers in the UK – intends to increase the insurer’s dividend “at low to mid-single digits”, it said.

Insurers in Britain risk being “optimistic” in estimating losses from Covid-19-related claims and should “stress test” their underlying assumptions, the Bank of England said. “Our work has highlighted that a number of firms have not been able to accurately identify and track Covid exposed policies, leading to unexpected Covid losses,” the central bank said in a letter to insurers.

Engineering

Rolls-Royce raised £2bn via a rights issue, with existing shareholders signed up for 94% of the new shares. Airlines pay Rolls-Royce based on how many hours its engines fly, so the company’s finances have come under increasing pressure after Covid-19 prevented most flights from operating earlier this year.

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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