Weekly Market Commentary (January 18– January 22)

 

Global Market Highlights

  • US equities reach new highs

  • Housing inventories at lowest point on record

  • European lockdowns extended as mutations spread

  • Economic activity in the eurozone contracts for third consecutive months

  • Japanese exports increase for the first time in two years

  • China’s economy regains pre-pandemic momentum

US Markets

Major equity indices ended the week higher for the week as the communications sector led the gains in the S&P 500 index , boosted by larger gains in Netflix shares following its quarterly report which detailed a surprisingly large gain in subscribers in Q4.

Hopes for a new stimulus package under the new Biden administration drove much of the gains early in the week. On Tuesday, Janet Yellen told the Senate Finance Committee that it is necessary to act big to help the economy deal with lockdowns and high unemployment. Joe Biden’s inauguration took place on Wednesday without any significant protests or violence, which also calmed investors on Wall Street.

President Biden repeated his goal of 1 million vaccinations a day for the first 100 days of his presidency, although there was some confusion about whether this meant 50 million Americans getting the recommended two doses of the Pfizer/BioNTech and Moderna vaccines, or 100 million first doses. Among his first acts in office, Biden also reversed the Trump administration’s decision to withdraw from the World Health Organization, while the nation’s leading infectious disease official, Dr. Anthony Fauci, said that additional vaccines should be on their way soon. Daily deaths from the virus in the U.S. hit the second-highest level on record on Wednesday, but daily cases and hospitalizations showed signs of moderating.

The week was light with economic news and economic news did not drive market sentiment. Weekly jobless claims fell back to 900,000 while the preliminary gauges of manufacturing and services sector activity in January surprised to the upside. The housing sector seems to be in an outstanding shape as existing home sales and housing starts at their highest levels since 2006.

The major US indices ended the week higher as the Dow Jones Industrial Average gained 0.55%, the S&P 500 index up 1.92% , while the Nasdaq Composite index jumped 4.19%.

European Markets

European equity markets were mixed for the week as the Stoxx Europe 600 index finished the week flat as renewed COVID-19 concerns and doubts about US economic stimulus held back gains. The German DAX 30 index gained 0.63% while the UK”S FTSE 100 index fell 0.60%.

European governments continued to extend lockdown measures as concerns about the spread of highly infectious mutations of the coronavirus.

Prime Minister Conte comfortably won a confidence vote in the lower house of Parliament and scraped by in a Senate vote after the exit of a coalition partner last week precipitated a political crisis. He also won backing for a EUR 32 billion economic support package to deal with the coronavirus pandemic and its fallout.

In the UK, the BoE Governor said that he expects an economic recovery in the UK later in 2021as the vaccines become more widely available and everyone gets vaccinated. Earlier, the central bank’s chief economist said that he expects the recovery in Q2.

A Purchasing Managers’ Index suggested that business activity in the eurozone contracted at a faster rate in January, as renewed lockdowns weighed on services. However, factory output expanded for a seventh month, albeit at a slower rate, due to growth in new orders, exports, and backlogs.

Asian Markets

Asian markets ended the week higher for the week as the Japanese Nikkei 225 index gained 0.4%, while in China the Shanghai Composite Index advanced 1.1% and the large-cap CSI 300 index rose 2%.

Japanese exports rose 2% in December on an annual basis and marked the first positive metric since 2018. The gains were powered by growth in plastics, nonferrous metals, and semiconductor production equipment, although auto-related product shipments were lower. Import data was weak, declining 11.6% versus forecasts for a 13.9% fall-off due to a reduction in crude oil, coal, and aircraft products.

Japan’s government agreed to buy vaccines for around 12 million people from Pfizer, which means that Japan will have enough vaccines to treat 72 million people which is more than half of the 126 million people living in Japan. The Pfizer/BioNTech vaccine is the only product under review by the Health Ministry, and it is expected to receive approval on February 15. Officials said that the vaccination efforts for Japan’s general population are expected to begin in May, after prioritizing medical staff, people 65 years and older, those with preexisting conditions, and workers caring for the elderly.

In an early test case for U.S.-China relations, China's three biggest telecom companies appealed the New York Stock Exchange’s recent decision to delist their U.S.-listed shares, a move that is expected to receive a response within 25 days. On the coronavirus front, China now has 22 million people under lockdown as officials try to contain a recent outbreak in Hebei Province. Case numbers remain low compared with other countries, though a high number of asymptomatic infections and the rural location of some clusters have concerned authorities.

In 2020, China’s economy grew 2.3% which was close to forecast and one of the few countries achieving positive growth which underscored the nation’s remarkable recovery from the coronavirus lockdowns.

Retail sales rose 4.6% in December, lagging the overall recovery. Given Beijing’s recent focus on bolstering the domestic market as a growth driver, many analysts see a bright outlook for consumer spending. Wealthy households in China appear particularly eager to spend, with overseas travel on hold due to the virus. Consumption of luxury goods is expected to surge 48% in 2020 to RMB 346 billion.