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Market Update 24/12/20

Stocks were mixed last week as investors weighed lawmakers’ approval of a long-awaited relief bill against ongoing virus concerns and new U.K. travel bans. Small cap and technology stocks were up, with both the Russell 2000 and Nasdaq indexes finishing the week higher. The U.S. has continued its vaccination effort, with over 1 million people receiving the first dose of the new vaccine. Markets closed early Thursday and were shuttered on Friday in observance of the Christmas holiday.

News of a new and apparently more transmissible coronavirus strain in the UK started the trading week off on a decidedly down note, with stock futures lower by over 3% on Monday morning. The market shrugged off its losses as trading began, however, with investors seemingly calmed by reassurances from U.S. health officials that the new strain did not appear more deadly and would likely be treatable by the vaccines. Signs that the latest wave of the pandemic might be peaking in much of the country, along with news that the U.S. government had contracted for another 100 million doses of the Pfizer-BioNTech vaccine, seemed to bolster sentiment as the week progressed. Distribution of the first doses of the Moderna vaccine also began on Monday.

Shares in Europe were roughly flat for the week ended Thursday, as hopes for a UK-European Union (EU) trade deal helped reverse sharp losses caused by the emergence of a new variant of the coronavirus. The UK and the EU did finally agree on a post-Brexit trade deal, with the announcement coming after UK markets closed. The accord still must be approved by all EU member states. The agreement’s terms would represent a significant change in the relationship with the UK’s major trading partner and, some say, amounts to a “hard” Brexit in all but name.

The Office for Budget Responsibility has forecast that Brexit will cost the UK 4% of its gross domestic product (GDP) over 15 years. The UK’s official statistics agency’s revised estimate of third-quarter GDP showed the economy shrinking 8.6% from year-ago levels—an improvement from the earlier estimate of a 9.7% contraction.

China’s benchmark stock index fell for the week ended Thursday as a flareup in Sino-U.S. tensions weighed on sentiment. The Shanghai Stock Exchange (SSE) Composite Index shed 1.0% over the four days ended Thursday, while the large-cap CSI 300 Index was nearly flat. The SSE Index recorded its biggest one-day percentage drop since September after the list was published, which marked the latest instance of U.S. actions targeting Chinese companies as President Trump prepares to leave office.

Japanese stocks declined for the week through Thursday. The Nikkei 225 Stock Average fell 0.4% (95 points) and closed at 26,668.35. For the year-to-date period, the benchmark is ahead 12.7%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded modest losses. The yen was little changed versus the U.S. dollar and traded in a narrow range between JPY 103 and JPY 104 on Thursday.

U.S. Government-Bond Yields rose on post-brexit trade deal hopes. The yield on the benchmark 10-year U.S. Treasury note was 0.96%, compared with 0.92% on Tuesday. More directly impacted by the trade news, yields on European government bonds also climbed, with the 10-year German bond yield rising to minus 0.541% from minus 0.589% and the 10-year U.K. yield jumping to 0.29% from 0.18%.

In the commodities market, oil volatility also increased this week. The tightening of oil supply was supporting prices, but renewed global growth concerns are overshadowing the demand side adding pressure on WTI and Brent Crude. Gold reached a high of $1,324.49 during the week before retreating to $1,292 towards the end of the week following the recovery of the US dollar.

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