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    Weekly multi-asset update: December

    Weekly multi-asset update: December

    18 December 2020 Multi-asset
    Week to 18 December, 2020


    • Global equities reached all-time highs as November PMIs surprised to the upside
    • The Federal Reserve, Bank of England and Bank of Japan left policy rates unchanged
    • The recovery in the US labour market took another step backwards, and retail sales for November also suffered

    Market and economic review

    As this is the last full working week of 2020, we will be pausing this publication until the New Year. Season’s greetings to all.

    Global equities continued to perform well as the year draws to a close, with the S&P 500 reaching record highs. This week we heard from the Federal Reserve, the Bank of England, and the Bank of Japan. Starting with the former, the Fed made no change to the policy rate and noted that the current pace of quantitative easing would be maintained. There was one interesting development on the inflation front, with the outlook into 2023 shifting to the 2.1%-2.2% bucket, slightly overshooting the Fed’s target. The Bank of England and Bank of Japan also kept their respective policy rates unchanged. The former noted that recent restrictions on activity had been tighter than they’d assumed in November, but also that the positive vaccine news and recent fiscal measures should support the economic rebound, whilst the latter extended its special COVID programmes by six months.

    Moving on to data, there were positive upward surprises in the December flash PMIs this week. The composite PMI for the eurozone came in at 49.8 (vs. 45.7 expected), with both the German (52.5) and French (49.6) composite readings coming in above expectations. Manufacturing remains strong, with France moving back into expansionary territory, suggesting demand for consumer goods is rebounding. Services saw a big rebound, largely ahead of consensus, which could be attributable to optimism on the vaccine front. Elsewhere, the UK composite printed at 50.7, below the consensus of 51.5 but an improvement from October’s 49.0. Services saw a mild rebound, however the wide range of areas in England still in zone 3 of the UK government’s lockdown tiering system looks to be weighing on the services sector still, as well as parts also being impacted by Brexit uncertainty.

    In the US, the composite PMI printed at 55.7, so still in expansionary territory but lower than the 58.6 from last month. Moving to the labour market, and the weekly initial jobless claims came in worse than expected for a second week running, printing at 885,000 for the week ending 12th December, its highest reading for three months. The retail sales number for November was also released, which fell by 1.1%, well below the consensus; sales were weak in almost every non-food component except for building materials and online sales.

    Turning to the pandemic, where there has been concern amongst authorities that the Christmas period could bring a resurgence in cases, with restrictions slightly relaxed for the holiday season. The UK Prime Minister Boris Johnson came under pressure to pull back the easing of restrictions, but he settled with urging the public to minimise the number of people they meet. The latest data on Bloomberg shows global recorded cases have now surpassed 75m, while the number of recorded deaths is 1.665m. On the fiscal side of things, whilst nothing has been agreed yet, there have been encouraging signs of progress in the US Congress towards the much-awaited stimulus package, which is expected to total approximately $900bn.

    Finishing with Brexit, where a deal is yet to be reached. UK PM Johnson indicated that talks with the EU are in a “serious situation” towards the end of the week, warning that a deal will be impossible without the bloc softening its stance on fisheries. On the other side of the negotiations, European Commission President von der Leyen shared that substantial progress was made on many issues, however, there remain big differences between the two sides. Sterling strengthened versus the euro over the week. 

    Week to 11 December, 2020


    • A US stimulus package to the tune of $916 was proposed, however politicians continue to debate the issue
    • The European Central Bank raised the budget of its Pandemic Emergency Purchase Program, whilst cutting their GDP forecast
    • European Union leaders agree a €1.82trn seven year budget and recovery package, whilst little progress is made on Brexit
    • Outlook: preliminary December PMIs, Brexit negotiations, and developments on US fiscal stimulus likely to remain in focus

    Market and economic review

    The US Chamber of Commerce stated that a new package was “desperately needed”. Politicians continued to debate the issue of further stimulus, with little immediate sign of resolution. The government made a fresh proposal of $916bn of fresh stimulus to Congress during the week, not dissimilar to the proposal of $908bn recently made by a bipartisan group. US Treasury yields declined over the week, with investors concerned about the impasse.

    This pressure comes at a time when the US jobless claims number rose to 853k (vs market expectations of 725k) for the week ending 5 December. This is the highest print since mid-September, and brings into question whether the recent recovery in the US labour market is slowing. 

    Japan did manage to come to an agreement on stimulus, with the government announcing a further $294bn of support measures for the economy. This is the third package announced this year, and it’s targeted at projects such as green technology and digitisation, with the aim of helping to get the economy up to speed post the COVID-19 period.

    Global recorded cases of COVID-19 reached 69.8m on Friday, with 1.6m recorded deaths according to data from Bloomberg. This leaves the mortality rate at just under 2.3%. There has been speculation that London is set for Tier 3 restrictions, following data which showed that it had the highest regional case numbers in England. In the US, various states are imposing stricter restrictions; Virginia announced a stay-at-home order until 31 January, and Ohio extended its night curfew until the new year. In Europe, Germany announced an extension to their partial lockdown, whilst the French prime minister is set to announce an 8pm curfew from 15 December. On a slightly more upbeat tone, the first vaccination was administered in the UK earlier in the week.

    At the European Central Bank’s (ECB) final meeting of the year, the budget of its Pandemic Emergency Purchase Programme was raised by a further €500bn to a total of €1.85trn, while extending the programme to “at least the end of March 2022”. The ECB also cut its 2021 forecast for eurozone GDP growth from 5.0% to 3.9%. Fears over the economic outlook, a no-deal Brexit and record daily new COVID-19 cases in Germany created nervousness among investors. Third-quarter GDP in the eurozone was also revised marginally lower. After the past few weeks’ exuberance over the announcements of the vaccines, the market took on a decidedly ‘risk-off’ mood over the week. The 10-year Spanish and Italian government bond yields hit new all-time lows, while Portugal’s 10-year bond yield went negative for the first time. German and French bond yields also fell. Elsewhere, EU leaders agreed a €1.82trn seven-year budget and recovery package to support the region’s economies through the pandemic and beyond.

    Finishing with Brexit: as the week progressed it appeared increasingly likely that the UK’s transition period would end without a trade deal with the EU. Sterling was volatile but generally weaker over the week. Meanwhile, pressure was building on the government to provide further support to the economy in the event of a no-deal, and following subdued GDP growth in October, which showed the economy rising just 0.4% month on month – the slowest rate of growth since May.


    Next week there are important central bank meetings for the Federal Reserve, the Bank of Japan and the Bank of England.  In the latter, there is no expectation for policy changes since last month's move to increase the bank’s quantitative easing programme by £150bn.   

    Elsewhere, the deadline for Brexit was pushed out to Sunday, so we expect headlines over the weekend summarising how discussions between the two parties are progressing.

    On the data front, the key releases will be the preliminary December PMIs from around the world on Wednesday, which will give the market an indication of how economies have been performing over the last few weeks. We will also receive industrial production and retail sales data from both China and the US, as well as the IFO’s latest business climate indicator from Germany.

    Week to 4 December, 2020


    • No progress on Brexit, as negotiations approach crunch time ahead of the rapidly approaching transition period deadline.
    • The UK became the first country to approve a COVID-19 vaccine as case numbers around the globe continued to rise.
    • A group of US senators from both the Democratic and Republican parties put forward a proposed $908bn stimulus package.
    • Outlook: Brexit negotiations, progress on the EU’s budget and recovery fund, and developments on US fiscal stimulus are likely to remain in focus on the run-up to Christmas.

    Market and economic review

    In what was deemed a crucial week in Brexit negotiations, little was achieved. Whilst news flows pointed towards a deal edging closer, with the UK reducing its demand for fish caught by EU fleets (one of the three main sticking points) and chief EU negotiator Michel Barnier commenting that a trade deal was “in the balance”, the week ended with less momentum, with a UK government source saying that talks had taken a “turn for the worse” on Thursday afternoon. It was rumoured that British officials had accused the French of making last-minute demands. The expectation is that talks will continue throughout the weekend, with the end-of-year transition period deadline fast approaching.

    Also in the UK, regulators approved the Pfizer/BioNTech vaccine this week, making the country the first to do so. Given that the vaccine needs to be stored at temperatures far below freezing, it is likely that the vaccinations will take place in facilities with the required infrastructure, such as hospitals. The UK has ordered doses to vaccinate around 30% of adults, and it’s expected that care home residents and health workers will be the first in line. Indeed, it’s thought that the first vaccinations could be administered before Christmas. This is welcome news, and it comes at a time when case numbers across the country have been falling, showing that the recent nationwide lockdown has had a positive effect. The UK government voted in favour of a new tiered system of restrictions across England as the lockdown was relaxed.

    More broadly, daily infection numbers are continuing to rise globally, albeit testing is now in wider use. Germany has extended its partial lockdown until 10 January and travel over the Christmas period in Spain has been restricted unless for family gatherings. Elsewhere, the US reported its worst day for deaths yet, and hospitalisations have been increasing by over 1000 per day. This prompted further measures being imposed, such as residents in Los Angeles being told to stay at home. On a slightly more positive note, the weekly US jobless claims number for the week ending 28 November came in better than expected, at 712k (775k was the market consensus), and the November US jobs report showed the unemployment rate fell to 6.7%, from 6.9% last month. 

    Despite those slightly better numbers, the unemployment rate is much higher than it was pre-COVID, and hence more still needs to be done by way of offering support to businesses and those unemployed. On that note, a group of US senators from both the Democratic and Republican parties have tried to break the stand-off between the sides regarding a new package of support measures for the economy. A $908bn package was put forward, albeit this is some way short of the $2trn package discussed ahead of the US presidential election.

    Progress on the fiscal front is welcomed, with US Federal Reserve (Fed) Chair Jerome Powell warning of uncertainty ahead. In an address to Congress, Powell stated that the economic outlook continues to be “extraordinarily uncertain” as the number of new COVID-19 cases continued to rise in the US, and despite the recent good news on vaccines. This contrasted with the views emanating from the US Treasury, where Secretary Steven Mnuchin gave a more upbeat note on the economic outlook.

    More generally, the risk-free rate appears well anchored. Over the medium term, a recovery implies upward pressure on government bond yields, but we expect any moves to be gradual in nature and most likely back-dated to later in the recovery process. In the short term, short rates remain firmly anchored at their lower bounds and that looks set to be the case for some time yet, and the Fed has signalled its willingness to adjust the pace and composition of its asset-purchase programmes if needed to ensure plentiful liquidity.

    It is a similar situation in Europe, where the European Central Bank (ECB) recently concluded that the outlook for the eurozone economy was “bumpier” than previously projected and that business demand for loans and the availability of credit were both contracting. Accordingly, the ECB is set to recalibrate all its monetary instruments at its December meeting next week to provide additional support.


    Despite moving what is typically the quieter month of December, there is plenty for markets to focus on as we move closer to Christmas. Not least will be whether there is any progress on Brexit talks between the UK and European Union over the coming weekend and into next week. This is not the only thing the EU needs to focus on: the long-term budget and recovery fund are still being negotiated, with both Poland and Hungary voting against the proposed rule-of-law conditions for the disbursement of funds. And then finally for Europe, the European Central Bank will be announcing its latest monetary policy decision on Thursday. It has already announced that there will be a recalibration of its policy stance at this meeting.

    Elsewhere, post this week’s $908bn proposed package, stimulus talks will remain in focus through the week, with hopes that something can be agreed in time for President-elect Joe Biden taking office in January.

    Focus will also remain on developments on the vaccine front, and more broadly on how COVID-19 case numbers evolve from here.

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