After the vaccine inspired November rally, it looked like equity markets might tread water in December 2020 as on-going Brexit trade deal talks and an increasingly worsening Covid-19 situation placed a cap on the previous month’s enthusiasm.
Indeed, as far as Brexit was concerned the mood music appeared to sour following a meeting between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen with the former describing the situation as “tricky”. Possibly a negotiating tactic but if so, it was effective as the deal was finally signed before year end. With the final tome running into over 2,000 pages it is too early to assess the impact of its conclusions, but markets gave an initial nod of approval celebrating at least the removal of uncertainty. Unfortunately, the pandemic brought no such good news particularly as evidence of a new more transmissible strain emerged in the UK. The result was a swathe of lockdowns across much of Europe and beyond.
Although the Brexit result contributed to the return, the continued supportive action from governments and central banks was most likely behind the enthusiasm. The ECB meeting resulted in a commitment to low interest rates for the duration of the pandemic as well as a significant boost to both the length and size of its emergency plan. In the US, after much prevarication Congress approved its own spending bill resulting in $900 billion of Covid-19 aid as well as a further $1.4 trillion of more standard government spending and corporate tax cuts.
Equity markets finished the year with positive returns since the lows in March. Should the global vaccine roll-out prove to be successful there is scope for a strong economic rebound in 2021 as economies emerge from the torpor of lockdown. With fixed interest markets offering little in the way of returns we remain positive on the outlook for the coming year.