Market Pulse - December 2020

Key themes

Investors digest a Biden victory

Covid vaccine success

Policymakers poised to do more, if needed

Brexit nears the endgame

Markets snapshot

The MSCI AC World equity index rose 11.5% (9.4% in euro terms).

Europe rose 14.2% (14.0% in euro terms), benefiting from the expectation of improving growth and the index’s higher weighting to value stocks.

The UK rose 13.1% (13.7% in euro terms), also supported by its higher weight to value stocks and growing hopes of a Brexit deal.

Emerging markets underperformed, rising 7.8% (6.4% in euro terms). While positive vaccine news supported global equities, the requirement to store the two leading vaccines at extremely low temperatures means they may not be suitable for widespread distribution across emerging-market countries.

Pacific Basin equities slightly underperformed, rising 11.1% (11.7% in euro terms), with Hong Kong lagging on renewed political tensions.

Eurozone >5-year bonds rose 0.2% as the German 10-year yield rose to -0.57%.

Core global bond yields rose on the improved growth outlook linked to the positive vaccine news. Peripheral spreads, however, narrowed in the more ‘risk on’ environment, with Italian 10-year spreads falling to 120 basis points (bps) while Spanish spreads slipped to 65bps.

The euro rose against the US dollar to 1.1954 as the ECB appeared to rule out further interest rate cuts, while the dollar suffered from its perceived defensive characteristics.

Commodities rose 12.0% (9.1% in euro terms) on the improving growth sentiment, while also benefiting from the weaker US dollar.

West Texas Intermediate (WTI) oil rose 26.7% as OPEC considered delaying an easing of production cuts that are scheduled for the new year. Like the US dollar, gold fell -5.6%, given it is often seen as a safe-haven asset.

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