Quarterly Investment Update

2020 will definitely be a year everyone will remember. December saw a revival of the pandemic as most advanced and emerging economies entered fresh lockdowns. The severity of the lockdowns doesn’t seem to bother equity investors, as the size of government stimulus measures and the unprecedented monetary support by Central Banks seem to give the green light for the bull market to continue into 2021.

US’s labour-market recovery stalled in December as fresh restrictions and lockdowns urged employers to cut 140,000 jobs, the first monthly decline since spring. The decline was mainly attributed to the wounded leisure and entertainment industry. The latest $900bn Covid aid package signed on year end, which includes payments to households and businesses is expected to provide some relief to the workers in highly vulnerable industries. Moreover, household spending, new and existing home sales, declined in November, hinting that the US economic momentum is slowing. Economists expect that the U.S. economy grew in the fourth quarter—though more slowly than the rebound that occurred in the prior three months. On another note, president Trump became the only president to be impeached twice, this time for allegedly encouraging a mob to storm Congress as part of an effort to overturn Joe Biden’s election win. A trial in the Senate would occur after Biden takes office on January 20.

Consumer demand remained muted in the Eurozone, with retail sales falling more than expected in November and with inflation negative for the fifth consecutive month in December, causing headaches to policy makers and the ECB. The Eurozone annual inflation rate came in at -0.3% in December, and coupled with the single currency’s strength vs. the greenback, the stage is set for a dovish tone by the ECB in its January meeting. A significant challenge for the union in 2021 will be the fiscal legacy of the pandemic, which pushed public debt loads to 100% of GDP in the EU as a whole and to 160% in Italy. Discussions on whether the escape clause from EU fiscal rules should be extended and how the EU’s EUR750bn fund should work in practice and for how long, are realities that Eurozone leaders will have to face.

After four years of negotiations the UK left the European Union, 48 years after it joined the bloc. Despite reaching a trade deal which includes tariff-free trade in goods, many major arrangements have yet to be completed, notably the long term basis for trade in financial services. Adding to the list of challenges the UK has to face in 2021, the country faces a difficult balancing act between public-health risks against economic pain. Boris Johnson announced recently a new national lockdown, as a spike in Covid cases threatens to overwhelm the healthcare system.

Sweden’s distinctive approach to coronavirus strategy has come to an end, as social distancing, school closures and face masks are now a reality for Swedes. The increased spread of infection and tighter restrictions are likely to lead to a new downturn for the Swedish economy, according to the Riksbank. The economic and business sentiment fell in December, as deteriorating indicators for the manufacturing and construction sectors weighted on confidence.

Chinese car sales fell 6.8% in 2020, as the world’s largest automobile market contracted for a third straight year. Economists expect a strong rebound in 2021, as economic momentum gathers pace in the world’s second largest economy. On a more positive note, China and the EU agreed in principle to the Comprehensive Agreement on Investment (CAI) in the final hours of 2020. The deal theoretically gives Europe more opportunities in China for automobiles, cloud computing, financial services, health care and telecom, creating a headache to US president-elect Joe Biden who wants to work with allies to confront China.