Market Watch: December 2020

Global equity markets hit new all-time highs in December with the announcement of a new round of U.S. unemployment benefits and stimulus checks. The scale and the size of the stimulus bill, the growing number of COVID-19 cases, and the vaccination campaign were under scrutiny by investors. While the vaccines are being produced, the long awaited Brexit agreement between the UK and the EU was signed.

Canada

The S&P/TSX Total Return Index ended the month of December up 1.72% to finish in positive territory YTD as Canada authorized the use of the COVID-19 vaccine produced by Pfizer and BioNTech. Discretionary, Materials, and Info Tech led the way while Health Care, Telecom, and Staples lagged.

The Canadian loonie rose 2.09% against the U.S. greenback, as crude oil prices jumped 7.01% last month. As a result, the benchmark rose near its ten-month highs. The Canadian economy rebounded at a record 40% pace in the third quarter, but GDP is still below pre-COVID levels. According to economists, the Canadian economy is unlikely to return to pre-pandemic levels before 2022.

The Bank of Canada, led by Governor Tiff Macklem, kept the overnight rate at 0.25% and reiterated its promise to keep it low, possibly until 2023. The central bank would continue to purchase Canadian government bonds worth at least C$4 billion per week and reaffirmed the bank’s commitment to provide support until the economic slowdown is absorbed and the inflation target of 2% is reached.

United States

The S&P 500 Total Return Index ended the month of December up 3.84%, reaching an all-time high helped by U.S. lawmakers passing a $900 billion coronavirus stimulus package deal. Financials, Info Tech and Energy led the way while Utilities, Industrials, and Staples lagged.

Donald Trump signed the deal despite his persistent concerns that a $600 a week unemployment check is inadequate. He also threatened to veto the defense bill unless lawmakers include new rules for social media platforms. House Democrats, with little Republican backing, immediately approved legislation Monday night to raise direct transfers to $2,000 as President Trump demanded, but Senate Majority Leader Mitch McConnell blocked the change by unanimous consent in the Senate.

The Fed’s chairman, Jerome Powell, said at a news conference after the meeting, that the central bank would keep its effort to bolster demand going by keeping interest rates at 0.25% and buying government-backed debt “for some time,” adding that the “the next few months are likely to be very challenging.” 

International

The MSCI ACWI Ex US Total Return Index ended the month of December up 5.43%, boosted by the Brexit trade agreement and the United States fiscal stimulus package’s approval. Info Tech, Materials, and Staples led the way while Health Care, Telecom, and Industrials lagged.

The UK government has widened its most stringent prohibitions to additional regions to minimize infections, hospitalization, and mortality due to a new coronavirus variant. Following regulatory approval, authorities have begun distributing a second vaccine developed by AstraZeneca and Oxford University, which will speed up its vaccination program. The Pfizer/BioNTech vaccine has been provided to the most affected EU nations. Also, the EU will trigger an option to procure 100 million extra doses of the vaccine.

The EU and China have agreed on an investment treaty after seven years of negotiations. EU Trade Commissioner Valdis Dombrovskis said the EU would gain better access to the Chinese market for the automotive, healthcare, cloud computing, and air transport industries. The EU would also enjoy similar benefits in the insurance and asset management industries to those guaranteed by the US under its “phase 1” trade agreement with China. The two parties have not yet ratified the treaty. The EU expects the deal to take effect in early 2022. 

Meanwhile, Poland and Hungary lifted their veto over a €2.2 trillion financial support package, provided it is ratified by the 27 member states’ national parliaments. The agreement has a large portion of the budget and recovery fund for sustainable and environmentally friendly projects. The European Union has also decided to tighten climate targets for 2030 and increase targets for reducing carbon dioxide emissions from 40% in 1990 to 55% by 2030. That will lead to an increase in investment in renewable energies and more regulations for the oil and gas industry.

Regarding policy, the European Central Bank increased the volume of planned asset purchases from €500 billion to €1,850 billion. These purchases will take place until the end of March 2022. A restriction was added that the purchases could be terminated earlier if they are no longer needed. This helps the Eurozone bond yields low at the start of the new year, although the overall supply of government bonds is expected to be high due to the pandemic stimulus programs.

The Portfolio Management Team

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