Market Round-up: 4-8 January

Thomas Watts


This week

After a tumultuous 2020, the first full week of 2021 did not disappoint as fresh lockdowns and US political unrest continued to dominate the headlines. However, a new year meant fresh optimism from investors who waged that the worst was now behind them, pushing global benchmarks to all-time highs as they did so.

By Wednesday, the domestic FTSE 100 index ended at its highest since February’s COVID outbreak, led by banking and energy stocks. Bets on further US stimulus, coupled with a jump in crude oil prices after Saudi Arabia agreed to cut more output than expected, led to rises not seen since the country started to come out of lockdown for the first time. With banks being one of the most cyclically exposed sectors and largest constituents of the benchmark, the blue-chip index surged 3.5%, clocking its third consecutive session of gains, one for each trading day of 2021. Banks such as HSBC, Barclays and Standard Chartered provided the biggest boost with gains of between 8% and 9.6%. 

The FTSE’s oil majors also did their part to maintain a stellar start to the year, with BP and Royal Dutch Shell rising almost 6.5% as crude prices gained after Saudi Arabia said it would make additional voluntary oil output cuts of 1 million barrels per day in February and March. The FTSE 250, although not rising as much, was buoyed by Greggs the baker coming out all buns glazing, closing 7.8% higher after it announced its sales decline had slowed. 

Ignoring the events across the pond, across the Channel European stocks also rallied during the middle of the week, after a second COVID-19 vaccine won regulatory approval on the continent. The Support of Moderna’s candidate means that the European Union can now battle the virus much quicker and efficiently. Europe’s markets were also buoyed by M&A activity as the year’s first deal was sewn up with luxury goods behemoth LVMH purchasing US jeweler Tiffany for $16 billion. 

On the economic data front, there was mixed news for Europe as Economic sentiment ticked up in the bloc last month, but inflation remained stubbornly in negative territory. Price rises in the Eurozone stayed at minus 0.3% in December, underperforming analyst expectations for a minus 0.2%.
The first Friday of the month usually hails the release of US Non-Farm Payrolls, with last month’s reading showing employment declined by 140,000 in December, with the unemployment rate unchanged at 6.7%. The decline in payroll employment reflects the recent increase in coronavirus (COVID-19) cases and efforts to contain the pandemic. On the positive side, hourly wages increased by 0.8% against economists’ predictions of 0.2%.

Next week

After the beginning of 2021 continued the themes of lockdown and political unrest from last year with aplomb, the second working week of the year should be a quieter affair, at least on the economic data release front. 

With the coldest day of the year on average falling on Wednesday, it is with some irony that proceedings should start to warm up as US inflation data is released. Detailing the change in the price of goods and services purchased by consumers, consumer prices account for the majority of overall inflation, acting as important data when examining interest rate trajectories as well as currency movements. 

Released on the same day is US oil inventories, which can indirectly be a key contributor to inflation expectations. The change in the number of barrels of crude oil held in inventory by commercial firms during the past week acts as a primary gauge of supply and demand imbalance within the market. If inventories are being drained quicker than expected, this should indicate a higher demand and vice versa, usually having a heightened impact on oil prices, which can in turn have a knock-on effect on inflation.   

The week is rounded off by a slew of domestic data as the Office for National Statistics (ONS) releases the UK’s Construction output, Goods Trade Balance as well as industrial and manufacturing production. However, perhaps the most important piece of data will be the nation’s month on month GDP figures, giving us the broadest measure of the change in the total value of all goods and services produced by the economy.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2021.