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Market Update 18/12/2020

Stocks edged higher last week, with all major U.S. indexes hitting fresh all-time highs. Fiscal-stimulus optimism, along with a brighter longer-term outlook driven by the rollout of vaccines, continues to support sentiment. Long-term Treasury yields rose modestly, and oil logged its seventh straight weekly gain. Economic data were mixed, revealing that the economic recovery is losing some momentum amidst rising virus cases and renewed restrictions in activity. The weakness in retail sales and the recent slowdown in job growth sharpened the market’s focus on fiscal aid. Congress appears to be closing in on an agreement on a relief bill worth $900 billion.

US equities over the week rose 1.6%, with US technology stocks rising 3.1%. European equities climbed 1.9%, whilst UK equities rose by 0.8%, held back by Sterling strengthening on renewed hopes that a deal can be struck between with the EU on Brexit. UK mid-cap stocks, which are more domestically orientated, rose by 3.9% over the week. Japanese stocks were up 0.6%, whilst Australian equities advanced by 0.5%. Emerging markets rose by 1.2% in aggregate, whilst the Latin American subset rose 3.4%, helped by the oil price holding on to recent gains and further weakening of the US dollar.

US Treasury yields, which move inversely to price, moved up a little over the week on optimism as to the outlook for 2021. 10-year US Treasury yields are now trading at 0.93%, similarly, German bund and UK gilts yields both moved higher, trading at -0.57% and 0.26% respectively.

Copper, considered a good barometer as to the health of the global economy, rose a further 2.7%, having risen over 70% since its low point in March. Oil also made further gains, with Brent crude rising 2.8%, now trading at $51.4 a barrel, having traded at beneath $20 a barrel in April.

The gold price moved higher by 2.6% over the week, now trading at $1,891, having risen by 22% since the start of the year. However, this has been dwarfed by the increase in Bitcoin, which has risen by over 200% this year, as speculators and investors alike have become increasingly interested in alternatives to national currencies that cannot be manipulated by governments.

With another deadline having passed last weekend, the UK and EU choose to continue negotiating over Brexit, with neither party wishing to be the cause of a ‘no deal’. The sticking points remain the issue of fair competition between European and British companies and fishing. The European side headed up by the president of the European Commission, Ursula von der Leyen, suggested that substantial progress had been made, leading to a rally in Sterling over the week. Although in truth, this was flattered by US dollar weakness. Sterling briefly traded above $1.36, its highest level against the dollar in over two years, whilst it traded above €1.11, before settling down to $1.353 and €1.104 by Friday, as the UK government reported that fundamental differences remained between the two sides.

This week’s trading will be cut short by the Christmas holiday on Friday, and markets will close early on Thursday. Data being released include personal income and consumption, consumer sentiment, and new home sales.

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