Weekly Market Commentary (December 21 – December 25)

 

Global Market Highlights

  • US government passed  a stimulus deal

  • Household spending falls for first time since April

  • UK and EU agree on post-Brexit trade deal

  • EU imposes tighter COVID-19 restrictions

  • BoJ leaves rates unchanged at the December meeting

  • Chinese stocks drop on US tensions

US Markets

The major benchmark indices ended the week mixed as investors absorbed conflicting signals about fiscal stimulus and the progress in fighting the coronavirus. The Nasdaq Composite index reached a new intraday high, while the large-cap benchmarks lagged.  Technology stocks were prominent within the S&P 500 as Apple boosted overall performance.

News about a new strain of the virus in the UK pushed sentiment into the negatives as stock futures were down 3%. As trading began, losses were recouped as US health officials reassured investors that the new strain did not appear more deadly than the previous one and most likely can be treated by the vaccines. 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.

The passage of a new stimulus bill also supported the sentiment, as on Monday, both the House and the Senate passed a $900 billion coronavirus relief package with a spending bill to fund the government through next September.  Waning levels of government assistance appeared partly responsible for a 1.1% decline in household incomes in November, reported on Wednesday by the Commerce Department. Household spending also dropped by 0.4%, the first decline since April. Other economic news, such as the 0.9% increase in durable goods orders in November also boosted markets.

For the week, benchmarks were mixed as the Dow Jones Industrial Average gained 0.07%, while the S&P 500 gained 0.3%. The Nasdaq Composite index ended the week 0.38% higher.

European Markets

Shares in Europe were flat for the week as hopes for a UK-EU trade deal helped reverse earlier losses caused by the discovery of the news strain of the virus.  The major European benchmarks ended the week in the red as the FTSE 100 index dropped 0.16% and the German Dax 30 index shed 0.32%.  

The UK and the EU finally reached an agreement for a post-Brexit trade deal. The agreement must still be approved by all EU member states and the terms would represent a significant change in the relationship with the UK’s major trading partner. According to calculations, Brexit will cost the UK 4% of its GDP over 15 years.

Boris Johnson imposed the toughest level of restrictions on London and then on southeastern and parts of eastern England to prevent the surge in coronavirus cases stemming from the emergence of a mutated strain that appears to be highly infectious. Other nations also banned travel from the UK. High infection rates prompted other European countries, including Germany, France, Italy, Greece, and Belgium, to introduce severe restrictions to minimize personal contact and mobility during the end-of-year celebrations.

The EU approved the vaccine developed by Pfizer and BioNTech. The companies would supply 1.25 million doses to the EU by the end of the year.  The EU Commission also doubled its orders for Moderna’s vaccine to 160 million doses, with delivery expected to start in early 2021.

Asian Markets

Asian equity benchmarks fell for the week as the Nikkei 225 in Japan fell 0.4%, while in China, the CSI 300 was flat and the Shanghai Composite index declined by 1%.

The Bank of Japan made no changes to its monetary policy stance at the December meeting. However, it did extend the corporate finance support measures through to September 2021 and announced a review of its monetary policy with the results expected in March 2021. The central bank’s communication indicates that it will not change the current policy framework, including the policy rate and yield curve control, and, therefore, the focus is likely to be on the sustainability of monetary policy.

On Monday, the Trump administration published a list of Chinese and Russian companies that it alleged had ties to their countries’ militaries. The list of 58 Chinese and 45 Russian companies requires a license for anyone seeking to sell them items that could be used for military purposes, according to a Commerce Department statement. 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.