Market Overview – 08/12/2020

At the time of writing (Tuesday 8th December a.m.) there is still no agreement on a trade deal between the UK and the EU. Time is fast running out, but it is expected that we will find out fairly soon. Brinkmanship is always a key element of a negotiation, but this one looks tighter than it should at this late stage. Arguably the shock factor is much diminished compared with the referendum outcome in 2016, so whichever way the decision goes, the impact on sterling (the most obvious barometer of the decision) and the stock market, will probably be less dramatic than four years ago.

Elsewhere, markets continued to rise last week on hopes that the rollout of vaccines will accelerate a return to normal during the course of next year. The FTSE World Index closed at a fresh all-time high on Friday. In particular, sectors such as oil and gas, mining and banks have been very strong and reflect optimism about an improvement in the global economy overall rather than necessarily local factors. Recovery at a national level will be uneven, given that countries are at different stages in their experience of the pandemic. Many Asian economies reacted early and have managed to minimise recurrence in the virus. Meanwhile much of Europe is seeing a second wave of outbreaks, while the US has experienced a broadening out from local hotspots to national incidence.

Central banks will continue to provide necessary liquidity to ensure the smooth operation of financial markets, while government support packages to households and businesses will remain essential while vaccines are distributed and administered. Although it does seem as if things will take a considerable time to get back to (new) normal, the prospect of mass vaccination in the first half of 2021 has brought a renewed optimism to markets, at the very least.