Market update – 10th December 2020

10th December 2020

It’s been a volatile week for equity markets, as they continue to take two steps forward and one step back, as world leaders race to reach agreements, on stimulus and post Brexit trade relations.

The S&P 500 started the week lower, following a rising number of coronavirus infections in the US. However, positive momentum resumed, as a report by US regulators indicated that the Pfizer coronavirus vaccine, could be approved for emergency use, as early as this week.

Adding to the positive momentum, were encouraging developments surrounding a new, US fiscal stimulus package, in order to support households and businesses, that have been hard hit by the coronavirus pandemic.

After a month long stand-off, Treasury Secretary, Steve Mnuchin, presented a new $916bn proposal to House Speaker, Nancy Pelosi. However, investor sentiment was dampened somewhat, as the House speaker sees a rival $908bn plan, which is still being drafted, as the best path to a deal. Whilst differences remain on how best to deploy the support, it is encouraging that things are moving forward and a consensus is emerging on the overall level of support required for the US economy.

The FTSE 100 index has seen little change, day to day, this week. However, there have been pockets of volatility during trading, as Sterling reacts to Brexit developments. With the majority of companies in the FTSE 100 generating their revenue overseas, the exchange rate can positively, or negatively, impact a company’s reported revenue (and therefore, the direction of the FTSE 100), when it is translated into Sterling for reporting purposes.

Brexit trade talks resumed on Sunday, and Sterling has been drifting lower as the days pass without reaching an agreement on post Brexit trade relations. There was a spike in optimism on Tuesday, which saw a brief rally in Sterling, as the UK dropped controversial parts of its Internal Market Bill, which had been weighing on trade talks.

However, Sterling has continued to fall today, which has lifted the FTSE 100, as Boris Johnson’s meeting last night with European Commission President, Ursula von der Leyen, concluded without a breakthrough, although some optimism remains, as they both agreed, that talks should continue, at least until the end of the week.

This afternoon the European Central Bank will be providing an update on its monetary policy, where it is expected to expand stimulus, while European Union leaders, are also meeting in Brussels, where they are expected to approve a new stimulus package.

Peter Quayle

Fund Manager