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Contents Click on the links below to get to the stuff you really really want. USA – Stocks hit new highs as stimulus deal nears; New US-China tensions; Disappointing jobs data (#USA) UK – Brexit deal hopes high during trading lifted pound and domestic stocks (#UK) Continental Europe – Tech and chemical companies lead modest gains (#Europe) Elsewhere – Japanese monetary policy unchanged; US-China tensions affect regional stocks (#Elsewhere) WTF – That’s all for 2020 (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
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USA
Stocks hit new overall record highs yesterday as a US financial stimulus plan seemed to edge closer. both sides of the political divide are making fairly positive noises, so investors were anticipating a positive jolt to demand. That left the S&P 500 0.6% higher, but the preference for tech stocks as more lockdown measures loom was reflected in the tech-heavy Nasdaq Composite adding 0.8%.
Futures (a proxy for the actual stocks that can be traded 24/7) fell overnight as fresh US-China tensions emerged. The US appears set to blacklist a bunch of Chinese companies. That’s going to knock share prices today in all likelihood, while disappointing jobs data that came out yesterday, might also add to the misery.
Here’s what we have to look forward to next year:
Covid-19 Increased lockdown measures to cope with rising virus numbers. This will hold up the economic recovery and cause more jobs to be lost and companies to close, keeping a lid on stock price rises when the relevant data come out. The vaccines are likely to start having a major effect by summer. In the meantime, it’s a case of being sensibly bored, stuck at home.
US stimulus The deal currently being put together will provide a short-term boost to stock prices, but most of it appears already to have been priced into stocks. So a further uplift in stock prices from it seems unlikely to be substantial.
US-China The spat won’t stop when Biden takes office. He’s politically obliged to show a strong face to China (though his face isn’t terribly strong per se, more semi-living). The random Tweets and about turns will be absent, but tensions will continue, and those will provide an impediment to stock prices and economic recovery.
Georgia run-offs If the Republicans win either one of the two Senate seats then they have control of the Senate and that will limit Biden’s ability to push more spending and tax plans through. Arguably, this might not be a bad thing, but it would make for another fairly hobbled administration that talks a lot but can’t get much done. If the Democrats were to win both George Senate seats, they would have control of the Senate (just), and that would change the outlook substantially. Biden would be able to push through his budget reconciliation proposals, meaning that taxes and spending could be hiked, having a considerable effect on demand, public debt and inflation. The short-term boost could be major, but the rising public debt is already a colossal burden that future generations will have to bear.
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UK
Hopes of a Brexit deal were fairly high until after trading finished. By then various folk were saying that a deal was unlikely. But the pound had risen during the day on the more positive mood that had prevailed. The more domestically focused FTSE 250 was pushed up by a full 1.0% with oil and technology stocks leading rises. Rank was a notably riser; the leisure and entertainment group added 10.4% on the day.
Stocks were more mixed in the export-focused FTSE 100. It dropped by 0.3% as the rising pound held exporters back and retailers had a bad day, not helped by a broker downgrading its target price for Morrisons which also went ex-dividend yesterday.
For next year: Brexit. Bojo’s handling of most things seems to have been based on his handling of a hair brush. If a Brexit deal of sorts is not agreed, we fall back on WTO rules. And the WTO is not working at the moment because Trump withdrew US support. What’s more, the WTO rules apply to physical goods. It doesn’t have much of a structure for services, and services account for around two-thirds of the UK economy. A no-deal would bring a nasty shock to the UK economy, even if it is masked by the pandemic.
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Continental Europe
Stocks had a modestly positive day across the continent yesterday. Technology and chemical companies were on the up as folk anticipated more lockdown measures. L’Oreal and MTU Aero Engines were both down.
For next year: European Central Bank Christine Lagarde and her chums will have to show that they are ready to take action when necessary. The continent is going to take another hit from the lockdown measures that are being re-imposed thanks to the second wave of the virus, and support is needed. Unlike the European Commission (where different country representatives have a bun fight over everything) the ECB is one organisation with a clear-ish and focused role which can look at reality and act accordingly.
Brexit This is less of an issue for the EU than it is for the UK, but a no-deal would deal a blow to the likes of Germany and Spain, net exporters to the UK (cars and holidays respectively – don’t get those two mixed up or you’ll be breaking down in Dusseldorf, emotionally and mechanically).
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Elsewhere
The Bank of Japan kept its policies unchanged earlier today, but extended its virus programme and made the usual statements about being ready to take more action. That lowered the price of the yen and enabled the Nikkei 400 to close flat while indices across the rest of the region were heading down.
The latest US-China news put a dampener on the mood pretty much everywhere else, to leave investors weighing the prospect of a US stimulus package against heightened tensions between the world’s two largest economies.
For next year: Biden & Xi Biden is likely to adopt a less petulant approach to, well, everything really, than his predecessor. But he cannot afford to appear weak in his dealings with China. The trade scenario is key to global economics, though Biden might be less antagonistic to other nations, thereby empowering his position against China.
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WTF (What’s The Fact?)
That’s all for 2020
It’s been a rotten year and will live long in the memory for almost entirely bad reasons. If, like me, you’re lucky enough to have retained your health, then I congratulate you. If you’ve lost loved ones or suffered at all, then I wish you my condolences and hope that 2021 will be better.
Thank you for reading this DMU. I do my best to provide something useful and occasionally entertaining. I make no money from producing it, it’s just something that I understand can be helpful. I hope so.
Merry Christmas and Happy New Year.
Stay well.
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Links
Investopedia (www.investopedia.com/dictionary/) – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point Guffipedia (ig.ft.com/sites/guffipedia/) – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies Guardian (www.theguardian.com) – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott) Times of India (timesofindia.indiatimes.com) – Why use five words when 37 will do? Daily Mail (www.theatlantic.com/magazine/archive/2016/07/the-war-on-stupid-people/485618) – Click it. I dare you.
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———————————————————— IMPORTANT This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you’re unable to recognise the devil’s ear wax when you see it, then you’re on your own.
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============================================================ Copyright © 2020 Chris Hurst, All rights reserved.
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