Vaccine and Economic Policy Developments Boost Global Sentiment
This week bought even more advances in the race for a Covid-19 vaccine, with Oxford University’s collaboration with AstraZeneca the latest candidate to release the results from stage 3 vaccine trials. Despite some initial question marks over its efficacy, the news was welcomed globally as it signifies yet another step out of the global pandemic and back toward normality. In terms of the market reaction, we have witnessed a further rotation from growth areas of the market into value opportunities in a continuation of the sector rotation that has been taking place since the initial news of a vaccine.
Market participants also rejoiced at the announcement of US President-elect Joe Biden’s choice of Treasury Secretary, Janet Yellen. The move signals that he plans to act aggressively to revive the world’s largest economy, putting a former Federal Reserve chair who’s not shied away from stimulus at the helm of economic policy. Meanwhile in the UK, Chancellor of the Exchequer, Rishi Sunak announced his one-year spending review as the nation nears the end of its second lockdown.
Oxford AstraZeneca Vaccine
Oxford University and AstraZeneca joined the vaccine race this week when they announced the results of their highly anticipated vaccine. There was initially some confusion over the results as the vaccine had an average efficacy of 70% but could be around 90% effective when administered as a half dose followed by a full dose a month later. A regimen consisting of two full doses given a month apart looked to be just 62% effective. But, surprisingly, participants who received a lower amount of the vaccine in a first dose and then the full amount in the second dose were 90% less likely to develop COVID, compared with participants in the placebo arm. The reason behind the striking difference is still be uncovered, however the leading hypothesis at the moment is that the half dose could be provoking a priming response of the immune system prior to the administration of the full dose.
Last week, Pfizer and BioNTech reported that their vaccine was around 90% effective after the trial reached its primary endpoint, and an interim analysis of Moderna’s vaccine showed it worked roughly as well. However, scientists caution against making direct comparisons, especially based on incomplete data. The disparity in the latest results mean there is considerable uncertainty in precisely how well the Oxford vaccine protects against Covid-19 without more data from ongoing efficacy trials.
From an investor perspective, the market reaction to the vaccines is what has been most interesting. Value rallied versus growth, as did many of the most hard-hit sectors such as travel and leisure. Many expect that if the vaccines prove effective it would trigger a shift of funds from the US dollar to riskier assets, pushing the safe haven down by as much as -20%. Evidence in favour of this is already present as the dollar index neared multi year lows this week.
Rishi Sunak Outline UK Spending Review
On Wednesday, Rishi Sunak delivered the UK’s spending review for the year ahead, balancing the need to provide much needed fiscal support alongside preventing debt from reaching unsustainable levels. Despite the opposition from Shadow Chancellor Anneliese Dodds, the spending review has provided much needed guidance for the year ahead, with three core priorities over the next 12 months. The Chancellor’s focus on the health of individuals, supporting jobs nationally and increasing infrastructure spending demonstrates the government’s desire to drive both short and long-term growth.
The measures have come at a much-needed time, with forecasted 2020 borrowing of £394 billion being the highest during peacetimes. Additionally, with the public sector net debt as a ratio of GDP breaking the 100% barrier so far this year, driving GDP growth is seen as a key priority. As such, maintaining household disposable income, providing business support, and providing job opportunities through infrastructure projects should achieve this.
For more information on the UK’s spending review and the core policies outlined, please see attached the market Update document.
Biden Signals Big Stimulus with Appointment of Janet Yellen
President-elect Joe Biden’s selection of Janet Yellen was seen as big win for the US economy and financial markets, since the former Federal Reserve chair is expected to focus on fixing the economy rather than the progressive Democratic agenda feared by some investors. It also signifies Biden’s plans to act aggressively when it comes to the next round of stimulus, as Yellen is regarded as a serious economic figure and will likely be a strong advocate for fiscal support, rather than someone seen as partisan. US stocks rallied as the news broke, with the pick welcome on Wall Street and much of Washington. The Dow Jones reached all-time highs of 30,000 on Tuesday.
Meanwhile, the Trump administration has agreed to start of the presidential transition, with the president tweeting that he authorised the move but that he will keep up a good fight. We welcome this news view this as largely positive for the US economy as we now expect a mostly smooth transition of power.
Our positioning
The continued vaccine related news flow has helped to remove the most severe downside risks to the global economy, and as such we have seen global markets rally over the past few weeks as market participants become more risk-on. Although we believe profit taking is likely in US large caps, many of the globally discounted value stocks will become increasingly demanded, and we see little chance of this slowing over the next couple of months. Risks remain in the short term, with peaking virus cases in the US and Brexit talks in the UK providing some short-term volatility, however we continue to see positive momentum as we end 2020 and move into 2021. Overall, we are well positioned to navigate current levels of volatility whilst also benefitting from the sectorial rotation which is continuing to accelerate.
Key Events We Are Watching This Week:
- Thursday: ECB Monetary Policy Meeting
- Monday: China GDP
- Tuesday: EU Inflation Rate, US Manufacturing PMIs
For anyone who wants further data to substantiate the position please review the attached Economic Dataset .
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 and positive economic policy developments. 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 these challenging market conditions. Year to date, we have recovered from the March coronavirus decline, and we are in a strong position moving forward.
Important Information
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 1940, the deHavilland Mosquito aircraft took off on its first flight. The Mosquito was one of the few operational, front line aircraft to be constructed almost entirely of wood, and as such was nicknames ‘The Wooden Wonder’. When it entered production in 1941 it was one of the fastest operational aircraft in the world.
Have a great week,
Jason & Gina
