Weekly Market Update: UK Equities on Track for Second-Best Month on Vaccine Rally

Weekly Market Update: UK Equities on Track for Second-Best Month on Vaccine Rally

Mon 30 Nov 2020

Market Update

Once again vaccine optimism supported global equity markets; this time it was the turn of the AstraZeneca vaccine, which can be more readily stored and transported. Global equities rose +2.1% for the week in Sterling terms. Financials and Energy were the two best performing sectors, as both sectors would benefit greatly from a sooner than anticipated return to normality. UK equities were up +0.3% for the week as concerns rise about the plausibility of finalising a Brexit deal before year end. US equities rallied +2.0% in Sterling terms on reports the President-elect plans to appointment Janet Yellen to Treasury Secretary. Yields remained relatively unchanged; the UK 10 year fell -1.8 bps to 0.284% and its US counterpart rose +1.3 bps to 0.837%. Oil prices rose +7.1% to $45.5 a barrel on the positive vaccine news, as a return to normality would likely see energy demand rise in 2021. Gold fell -4.7% to $1,788 per Troy ounce.

CIO Analysis

The US electoral news cycle is winding down (at least until the all-important Georgia Senate elections on 5 January), and earnings season for the S&P 500 is over. The US central bank has signalled it is generally comfortable with current liquidity levels, while the Bank of England and the ECB are getting ready to further ramp up stimulus if needed.

With a dearth of catalysts and policy/virus risks mostly to the upside, this is the week where investment markets might put the spotlight on Brexit. With a few weeks to go, time to implement a change in the status quo, which at this moment is a cliff-edge Brexit at the end of the year, is quickly ending. Last week, BoE governor Andrew Bailey warned that a no-deal Brexit could have a negative economic impact the size of that caused by Covid-19. Considering that the UK government has had to borrow at record amounts already to mitigate the damage of the Covid crisis, more debt issuance to stabilise a possibly weak Brexit economy could have an adverse impact on credit ratings, the currency and overall UK risk assets. On the other hand, a last-minute basic deal and the promise of further negotiations down the road could fuel a rebound in relatively under-priced UK portfolio holdings.

The politics of the matter are delicate and the pendulum might swing in either direction. Thus, for our portfolios, we continue to exercise caution and remain neutral on UK risk assets and the currency.

David Baker, CIO

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