Market round-up 18-22 January

Thomas Watts


This week

As storm Christoph pelted the UK with rain, snow and heavy flooding this week, it was the winds of change blowing through the US that really grabbed investors’ attention.

The middle of the week saw Joe Biden sworn in as the 46th President of the United States, replacing Donald Trump in a surprisingly incident-free transition of power. The new man in the White House spent no time in reversing some his predecessor’s policies, including America’s return to the international Paris Agreement to fight climate change, acting as some vindication for the large outperformance of green energy stocks in the run up to his election victory. 

In further moves, President Biden also announced a sweeping order to review all of the former President’s actions weakening climate change protections, the revocation of a vital permit for the Keystone XL oil pipeline project from Canada, and a suspension on oil and gas leasing activities in the Arctic National Wildlife refuge that Trump’s administration had recently opened to development. On the news, oil majors such as BP and Shell lost some ground as oil prices remained largely static. 

With a huge $1.9 trillion stimulus package set to be released in the US, European markets gained some traction with hopes that something similar could be released this side of the pond. The European Central Bank (ECB) mentioned in press conference that an “ample degree of Monetary stimulus is essential” also acknowledging that inflation remained close to anemic with demand being severely hit by the outbreak of COVID-19. 

There was also positive news to be found in China this week as data showed the country’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a COVID-19 2020 in remarkably robust shape, remaining poised to expand further this year even against the current backdrop. Surprising many commentators with the speed of its recovery, China’s GDP grew 2.3% in 2020, making the source of the outbreak the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic.

The week was rounded off by US jobless claims data, showing a moderate decline in those filing for unemployment benefits. Falling to 900,00 from 926,000 the previous week, beating economists’ forecast in the process, the data was enough to act as a tailwind for US markets to open at all-time highs. Although the numbers are generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health due to its effects on consumer spending and therefore inflation.


Next week

With the upcoming week being as suitably quiet as a January spent in lockdown, there are a few key economic data releases to watch out for, especially on the domestic scene, as the first month of 2021 draws to a close.  

With snow forecast for much of the UK, it is difficult to believe that we are entering one of the busiest periods for the housing market as spring approaches. Monday should give us some hints as to increasing activity in the sector as Nationwide releases its Housing Price Index (HPI) data. The numbers represent the UK’s earliest report on housing inflation but usually produce only a mild reaction as buying and selling prices are not always correlated. However, their data still acts as a leading indicator as to the state of the UK’s housing market as rising house prices attract investors and often spurs industry activity.

There is further domestic data released during the beginning of the week in the form of a myriad of employment data, courtesy of the Office for National Statistics (ONS). Whilst Average Hourly Earnings should make for interesting reading, it will be the headline unemployment rate that should grab the most attention. Detailing the percentage of the total work force that is unemployed and actively seeking employment during the past three months, unemployment rates are important for economists’ as they have a knock-on effect to wage levels, as well as overall labour market conditions. 

The week is rounded off by a raft of US consumer figures including both spending and personal income. Understanding how and where the consumer spends their income is key to understanding future inflation trends. The ripple effect of consumer spending throughout the economy cannot be understated and makes up a large component of central bank thinking when considering base rate movements.