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Article | 29 December 2020 | Investments
2020 has been called 'a year to forget', as the Covid-19 pandemic locked down economies and the world waited for news of a vaccine. Financial markets were boosted by vast rescue packages. We present the pick of the Quick Looks as the year unwound.
A trade deal between the US and China was agreed to the great relief of world financial markets. How does the deal shape up? China has agreed to buy an extra $200 billion of US goods. That includes farm products, as well as manufactured goods and energy. US banks will be granted access to the vast Chinese market in financial services, including credit cards. Tariffs slapped onto imports from China last year will be slowly rolled back, although the majority remain in place. The president promptly switched his sights to the EU, claiming they’re ‘tougher than China’.
Stock markets on both sides of the Atlantic approached record highs. Despite underlying concerns on the earnings or geopolitical fronts the bulls, or positive investors, were piling their cash into the markets. Once again, they were hoping for yet another bail out of cheap money from the world’s central banks if anything should go amiss. But the bears stepped in at the end of the month. Apple shocked markets by warning that first quarter results could be hit by both supply and demand problems, while the coronavirus grew towards pandemic status in spite of all containment measures.
They say every cloud has a silver lining, perhaps even the Covid-19 virus. Images from NASA show dramatic falls in the levels of pollution in the earth’s atmosphere. As factories have closed and aeroplanes no longer fly, the levels of nitrogen dioxide fell as much as 30% between January and February. And as traffic congestion has become a thing of the past in locked down cities like New York, carbon monoxide levels have dropped by 50% compared to last year. Sadly, the sightings of dolphins in Venice turned out to be fake news!
Swings in the price of oil broke all records, with dramatic upward spikes followed by dizzying plunges. At one point the price of oil in Texas was at minus $40 per barrel, meaning a buyer would be paid just to take it away! How did this happen? In early April OPEC and Russia agreed to an historic 10% production cut, but this was swiftly followed by fears of falling demand. Some forecasts predict oil demand could fall by up to 30% this year. And onshore and floating storage capacity is already overflowing.
Lockdown has been little short of disastrous for car producers. Sales in Western Europe alone fell by almost 80% in April. However, better news might not be too far down the road. In China, now driving the charge towards economic unlocking, individual car use has been jump-started, as people try to avoid public transport. So much so, that congestion in some cities has returned to 90% of former levels. The car industry wants to ‘build back better’, and in order to preserve our clean air, is looking to give electric cars a push.
Lockdowns have been lifted, bringing early signs of recovery. Retail sales have rebounded in many parts of the globe, with a jump of almost 18% in the US. While in New Zealand credit card spending almost doubled. Yet the US Federal Reserve (Fed) still strikes a cautious note, suggesting interest rates will not rise until late 2022. Hardly an expectation of strong economic growth in the meantime. But echoing a familiar phrase, the Fed promised support for ‘however long it takes’. And that’s exactly what financial markets need to hear.
Whether V-shaped or U-shaped, economic recovery is unlikely to follow the same path around the world. The US took a step back, as Covid-19 infection rates soared in some southern states and California re-entered lockdown. In Europe, the exit has mostly been smoother, boosted by promises of a €750 billion recovery fund. Meanwhile, China surprised with the strength of its second quarter rebound. As the world’s biggest steel producer, Chinese growth has pushed up the price of industrial metals.
A game of catch up perhaps, after years of mounting criticism, but big US tech companies could now be leading the green agenda. Alphabet (Google’s parent company) has just launched the biggest green bond in history, for projects such as clean energy, energy-efficient buildings and helping governments deal with the aftermath of Covid-19. Apple and Google already source all their power from renewables, while Facebook should be able to make that claim by year end. The huge scale of their investment should speed technology developments in renewables and, crucially, also drive down prices.
A glance at share prices since March would reveal that e-commerce giants have been a major beneficiary of lockdowns. As people stayed at home, spending moved online, boosting a trend which had already seemed unstoppable. To meet this surge in demand, Amazon has just recruited another 100,000 permanent staff in North America. That pushes total numbers up to 1 million. By comparison, bricks and mortar competitor Walmart employs 2.2 million people worldwide. But with the risk of further lockdowns as winter approaches, the switch to digital buying looks set to continue apace.
NextEra, world leader in solar and wind power generation, has topped the market value of Exxon Mobil. The US oil giant was at one time the biggest company in the world, but its share price has fallen 50% this year alone. The switch illustrates the tough times felt by fossil fuel companies, as prices and demand have collapsed due to Covid-19. As well as the global push towards renewable clean energy sources. Presidential candidate Joe Biden promised $2 trillion investment in green energy. While China has pledged carbon neutrality by 2060.
Positive news emerged from a trio of Covid-19 vaccine trials. Separate vaccines from Pfizer, Moderna and AstraZeneca were shown to be up to 95% effective. The need remains pressing, as the worldwide tally of coronavirus cases topped 55 million. If licences are granted for urgent use, then the rollout of a global vaccination programme can begin. The news triggered a relief rally in major equity markets. Although not all companies will benefit. Some Asian manufacturers of PPE, including protective gloves, saw their stock prices fall sharply.
As 2020 comes to a close, familiar stories continue to grip the markets. The Covid-19 pandemic, Big Tech market leadership and the changing US administration have dominated. And the start of the coming year looks to be no different. There will likely be more news on vaccines, offset by varying degrees of lockdown, while the new US president could cause markets to focus further on the cyclical upside of reflation. Only time can tell how events will play out and the market reactions. In the meantime, we wish all our readers a happy and successful 2021!