European equity markets began 2021 in an enthusiastic mood returning the best initial 5 day trading return since 2009. The pattern was the same as that seen in the back end of 2020 with the double promise of further stimulus measures, to offset the damage done by the pandemic, combining with an economic resurgence as vaccine programmes allow economies to re-open.
Such optimism, however, required the ability to look through short-term bad news particularly as far as new Covid-19 infections were concerned. In many ways the beginning of the rebound was possibly further away as new strains of the virus and increasing rates of infection prompted countries such as Germany, Italy and the UK to announce further restrictions. The gloom was further underlined by the ECB whose president, Christine Lagarde warned of the very real possibility of the Eurozone heading toward a double-dip recession. Further political shenanigans in Italy also didn’t help a somewhat fragile Europe still recoiling from the final resolution of Brexit.
In the US, the situation should have been clearer with Joe Biden firmly ensconced in the White House and, thanks to the run-off elections, also in control of Congress. But his majority is slim evidenced by the threat of him already having to water down his close to $2 trillion pandemic response package. News also started to emerge out of the US of stock market volatility prompted by the actions of day traders attempting to squeeze hedge fund short books. The phenomenon soon also spread to Europe adding an edge of uncertainty to what were already fragile market conditions.