The US Senate Swings to the Left while Calls for Impeachment Grow Louder
Equity markets started the year on a positive note, as optimism grows for a return to normality over the year while political uncertainty abates. US markets rose over the week on the back of Georgia Senate runoff elections, where despite not having elected a Democratic Senator since 1996, both Democratic nominees emerged victorious after a closely fought election. Financial markets were fast to react as the Senate composition moved to 50-50, with Vice President-elect Kamala Harris providing the tie-breaking vote in favour of the Democrats for the next two years. With key implications for fiscal policy and sector-specific regulation, the Democratic dominated Congress will likely remain accommodative for the foreseeable future, with greater expectations for fiscal stimulus in the coming months expected to combat near term economic weakness in the US.
Our update on the Georgia Senate Elections and expectations for the Biden Presidency can be found in the Market Update Document attached.
Ahead of the official inauguration of President-elect Biden next week, calls to impeach the outgoing President continue to grow on the back of last week’s attack on the US Capitol. President Trump faces criticism from all sides that he encouraged his followers in their actions which resulted in the death of five people. President Trump’s final days in office are expected to remain controversial, adding to short term market volatility.
London Braces as Financial Services Talks Begin
With a Brexit deal now in place, the UK starts talks with the European Union this week as lawmakers seek to iron out areas of the future agreement which remain uncertain, with post-Brexit financial services cooperation remaining at the forefront of investors’ minds. As it stands, the two sides are expected to agree a memorandum of understanding on the issue by March, with traders hopeful that access will return, after early signs that significant levels of European trading have moved away from London since the start of the year.
UK Lockdown Feeds into Virus Data as Case Numbers Show Initial Signs of Stabilisation
As the UK progresses through the second week of its third national lockdown, data suggests that new lockdown restrictions across the UK are beginning to have an impact on virus cases, as cases start to decline in many areas of the country. It is still early to say and further data is needed to confirm the downward trend, however data suggests a stabilisation in case numbers, which could prevent the government from introducing tougher restrictions in the coming weeks. The movement comes as the UK continues its aggressive vaccine rollout program, with more than 2.6 million vaccine doses now administered across the UK, accounting for c.4.3% of the UK population. Despite the malaise created by the re-tightening of restrictions this month, the rapid vaccine rollout is providing the public with optimism over a potential return to normality in 2021.
European Central Bank Remains Upbeat as Virus Cases Rise
Despite resurgent virus cases and the threat of renewed lockdowns across the continent, the European Central Bank remains optimistic on economic growth expectations for the year, according to President Christine Lagarde. In a recent interview, Lagarde highlighted that many of the uncertainties which previously clouded the outlook have now cleared, including the US election, Brexit and the development of vaccines. The ECB is currently forecasting growth of 3.9% across the bloc this year, with the assumption that lockdowns will last until the end of March. This adds to the positive outlook for European equities, where valuations remain attractive after political and economic uncertainty weighed on the recovery over 2020.
Key Events We Are Watching This Week:
- Thursday: China Trade data for December, US Jobless claims
- Friday: UK Manufacturing data, US retail sales for December
For anyone who wants further data to substantiate the position please review the attached Global Economic Update document
Model Portfolios & Indices
Global stock markets continued to display high levels of volatility over the week as countries across the world battle with surging virus cases and political uncertainty. The portfolios gained over the week as markets rallied on positive vaccine developments despite lockdown restrictions. Looking ahead, we are optimistic on the medium-term outlook from here, accepting further volatility in the near term, but confident in our positioning, with well diversified portfolios which have been designed to weather challenging market conditions.
*It should be noted that the make up of the equity element of the cautious portfolios (OBI 3 to OBI 5) is slightly different to the balanced portfolios (OBI 6 to OBI 8), with the equity element of the lower risk portfolios consisting of a higher weighting to globally focused and diversified multi-asset funds. As a result, the equity content tends to be lower risk and will therefore not perform as strongly as the balanced portfolios in rising markets, but tends to be less volatile in falling markets, in line with the mandate of the portfolio. If you would like to discuss the level of risk within your portfolio, please contact your adviser.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.
This Day in History
On this day in 2000, Bill Gates stepped aside as Chief Executive of Microsoft, appointing company president Steve Ballmer to the position. Gates still owns 1.34% of the company.
Have a great week,
Jason & Gina