Financial Bulletin – December 2020


It is possible that we will look back on November as the turning point in the COVID crisis, as multiple effective vaccines were announced and stock markets reacted strongly.

Both the Pfizer and Moderna vaccines are thought to be upwards of 90% effective, a very impressive result, whilst the Astrazeneca vaccine is less effective but much cheaper and easier to distribute.

The fact that vaccinations could start as early as December lead to some scientists predicting a return to normailty by Easter.

Also during an eventful month Joe Biden was elected the next President of the US.

A Biden-lead White House is likely to be more sympathetic to free trade, although the fact that the Republicans still control the Senate will curtail his power domestically.  

As would be expected the recent Coronavirus restrictions meant that most European economies weakened.

Most stock markets rallied signficantly following news of effective vaccines. However, it was generally the beaten-down stocks such as retail and travel which lead the rally.

In contrast, the technology stocks which have powered the market for most of this year were less favoured.

Over the last 6 months the FTSE 100 returned 1.62%, whilst the Euro Stoxx 50 returned 13.47% and the US S&P 500 returned 18.52% (all in price terms).

The Japanese Nikkei 225 gained around 19.81% over the same period.

The broad emerging markets index rose by 26.65% in US Dollar terms.

Developed-market government bond yields generally rose over the last 6 months as investors’ risk appetite increased in the wake of vaccine news.

US Economic News

At one point the US Election looked to be quite a tight race, but in the end Joe Biden secured a reasonably comfortable victory.

Biden is generally seen to be in favour of higher corporation taxes and higher government spending and investment. However, given that the Senate will likely remain in Republican hands he will have to fight to get these policies through.

One area which is likely to be different under the new President is international trade. Whereas President Trump made trade disputes one of his priorities, Joe Biden is expected to be less confrontational.

The news from the US economy was mixed during the month. Whilst jobless claims reached the highest for 5 weeks and one measure of consumer confidence fell to the lowest since August, both the manufacturing and services sectors grew strongly.

In fact manufacturing and services surged at the strongest rates for more than 5 years.

Despite Coronavirus cases beginning to rise again, companies reported being more upbeat about the 12 months ahead as the news on vaccines gave rise to hope of returning to normality.

UK Economic News

As the second national lockdown drew to a close the government announced that much of the country would be entering a period of stricter restrictions than before the lockdown.

This is a blow to much of the services sector, which is already facing huge difficulty.

The latest surveys suggested that the sector fell into contraction during November and deteriorated at the fastest rate since early Summer.

The Office for Budget Responsibility’s latest forecast suggested that 2.6 million people could be unemployed by Spring next year.

The economy as a whole is forecast to contract by a huge 11.3% in 2020.

It was therefore encouraging to hear that vaccinations may start in the UK before the end of the year. The UK has one of the most comprehensive vaccination programs in the world, having ordered well over 300 million doses.

Unlike the services sector there was some better news from the manufacturing sector which improved at the fastest rate for almost 3 years.

That said, some of the growth is due to firms stockpiling ahead of a potential ‘no deal Brexit’.

Although some progress appears to have been made in the negotiations, the two sides are still some way apart and time is rapidly running out for a deal to be ratified.

Eurozone Economic News

The Eurozone’s services sector deteriorated dramatically during November as stringent restrictions were imposed in several countries.

As was the case in the UK, despite reasonably strong growth in the manufacturing sector, the poor services sector performance meant the economy as a whole weakened.

Inflation across the currency union was negative for the fourth month in a row, despite the huge stimulus measures from both the European Central Bank and governments.  

The European Central Bank has talked about going further with its support measures during what is expected to be a tough winter period.

Wider Economic News

The Chinese economy continued to power ahead during November as the services sector improved at one of the fastest rates for 10 years.

The positive momentum was not confined to the services sector, either, as the manufacturing sector surged ahead.

The spillover effects from China’s economic recovery helped the Japanese manufacturing sector, which almost stabilised in November. The last time the manufacturing sector actually grew was at the start of 2019.

Elsewhere the Indian economy likely improved at a slightly slower rate in November, but nonetheless remains in robust shape.

Financial Markets and Corporate News

The news that widespread use of vaccines may only be a few months away led to a stock market rally during November. The S&P 500 touched on record highs towards the end of the month.

However, whereas for much of the year it has been the large technology companies driving stock market gains, during November it was generally the travel, leisure, and retail stocks which rallied hardest.

Over the last 6 months the FTSE 100 returned 1.62%, whilst the Euro Stoxx 50 returned 13.47% and the US S&P 500 returned 18.52% (all in price terms).

The Japanese Nikkei 225 gained around 19.81% over the same period.

The broad emerging markets index rose by 26.65% in US Dollar terms.

The Investment Association (IA) UK Gilts sector returned -2.40% over 6 months, whilst the IA Sterling Corporate Bond sector returned 5.06% and the IA Sterling High Yield sector returned 9.83%.

Source: FE Analytics

 Summary of Key News:

  • Three vaccines for COVID-19 have been shown to be effective, causing stock markets to rally.
  • Joe Biden won the US election and will be inaugurated in January.
  • Despite rising Coronavirus cases the US economy appears to be gaining momentum.
  • The OBR has forecast that the UK will be one of the hardest hit economies in the world.
  • The ‘Brexit’ trade talks appear to be making progress but time is running out.  
  • The Eurozone manufacturing sector grew but the services sector contracted significantly.
  • The Chinese economy continues to power ahead.

Financial Markets:

  • Over 6 months the FTSE 100 returned 1.62%, the Euro Stoxx 50 returned 13.47%, and the S&P 500 returned 18.52% (all in price terms).
  • The Japanese Nikkei 225 gained around 19.81% (in price terms).
  • The broad emerging markets index rose by approximately 26.65% (in US$ terms).
  • The   IA  UK  Gilts    sector    returned -2.40% over 6 months, whilst the IA Sterling Corporate Bond sector returned 5.06%, and the IA Sterling High Yield sector returned 9.83%.


The announcement that not one, but three vaccines have been created is a huge moment in the course of this pandemic.  

Unsurprisingly investors reacted with relief and stock markets rallied hard as a result.

It was noticeable, however, that most of the companies shunned earlier in the year, such as travel, leisure, and retail, were the ones leading the gains.

It remains to be seen whether this is a short relief rally, or whether these kinds of ‘old world’ companies will continue to make up ground on the more growth orientated companies which have lead markets for so long. 

In terms of the economic impact of the vaccine announcement, a lot now depends on how quickly they can be rolled out, as well as how quickly governments feel able to roll back restrictions.

In the UK, which is expected to take longer to recover from the crisis, further uncertainty comes from the ‘Brexit’ negotiations.

An acrimonious ‘no deal’ is likely to set the UK economy back further and dampen investors’ mood.

At the time of writing there is thought to be a matter of days before a deal would need to be struck.

Elsewhere, the election of Joe Biden is expected to usher in a less confrontational approach to trade disputes, although there is still likely to be tensions between the US and China.