18th January 2021

Good morning,

There was positive news overnight as China’s economy grew at a faster than expected rate in the last quarter of the year, which brought the full 2020 number in at 2.3%. This was the lowest figure in four decades, but it still makes China likely to be the only major economy (sorry we don’t count here in Ireland!) to record positive growth for 2020.

Indeed, China’s share of German exports has grown from 1% to almost 8% since the turn of the century and demonstrates how important the market will be to Europe in coming decades. This is something that Armin Laschet may have to consider very soon. Germany’s CDU party has chosen the State Premier to succeed Angela Merkel as party leader, in a move seen as a continuation of both policy and style.

Also, it is worth noting that eurozone sovereign bonds have lost value so far in 2020. Admittedly, a very short time frame and relatively small losses, but it does show that government bonds are not risk free by any means – particularly within a negative yield environment. Inflation expectations, increased stimulus (detailed below) and the potential for a post COVID-19 economic rebound are all factors at play. We continue to hold shorter duration government bonds across our multi-asset funds, as mandates permit.

Finally, just to note U.S. markets are closed today for Martin Luther King Jr. Day.

Weekly Investment News
Stocks fell last week as surging COVID-19 cases and worries in relation to vaccine roll outs took hold. Despite hitting intraday record highs on Thursday, stocks were hit on Friday with the start of earnings season. JP Morgan beat both revenue and profit expectations but still saw its price fall at the open, whilst Citi and Wells Fargo also fell as they disappointed versus analysts’ expectations. Value shares in general outperformed their growth counterparts, continuing a trend seen (so far) in 2021.

Economic news flow also hit sentiment as a slew of negative US data was released. Retail sales fell 0.7% in December and are now down three months in a row as lockdowns lead to a pullback in spending. Sentiment in general was hit with both consumer and small business gauges dropping back. U.S. inflation was also tepid for December with prices rising 0.4% (1.4% for the year) and core prices only up 0.1%.

The inflation figures continue to be below the Fed target and there is little to no expectation of monetary tightening in 2021. On the fiscal side President-elect Biden (due to be inaugurated this Wednesday) announced a $1.9 trillion stimulus plan to help combat COVID-19. The announcement was made against the backdrop of the unprecedented second impeachment of President Trump, which comfortably passed through the House of Representatives. Timelines for bringing it to the Senate floor remain unclear at the moment.

In Italy, the ruling coalition is under pressure as ex-Prime Minister Matt Renzi withdrew his party’s support in a move that was criticised across the domestic political spectrum. Concerns over vaccine distribution remain, but the pace of inoculation is increasing as investors attempt to look past the current lockdown strife to a more positive economic scenario.

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