A busy week domestically saw the Chancellor deliver his Spending Review and the Prime Minister updating the country on the ‘new’ tiered system that will come into play when the English lockdown ends on 2nd December.
Rishi Sunak’s spending review brought with it sobering projections from the Office for Budget Responsibility (OBR) that sees UK GDP falling by 11.3% in 2020 – the largest fall in 300 years – not regaining its pre-pandemic level until late-2022 and remaining around 3% smaller than it otherwise would have been by 2024/25.
Public sector wages will be frozen, though one million NHS workers will receive a pay rise and those employees earning less than the median wage will be guaranteed a £250 raise. In making this announcement, the Chancellor highlighted the differences in job security currently between the public and private sectors.
With significant restrictions remaining after 2nd December, there will be a slower bounce back in activity than seen after the first lockdown, but looking beyond the next six months or so, positive vaccine news may mean that GDP growth is much stronger in 2021 than is currently anticipated.
Both equity and bond markets saw broadly positive returns last week as broadly positive sentiment stemming from vaccine news continued to drive prices upwards.
In equities, we saw riskier regions of emerging markets perform strongly again, with Latin American equities in particular outperforming with a 3.1% return in Pound terms. Japanese equities were also relative winners with a 3.0% rise, with the US (1.9%) Europe (1.4%) and Asia (1.1%) further back.
UK equities struggled this week with the large-cap FTSE 100 index rising by just 0.3% and the more domestically focused FTSE 250 index falling by 0.2%. Both indices took a breather after outsized gains seen earlier in November following the original vaccine announcements, but they should be set fair for the medium term if events continue to unfold as expected with inoculations beginning in early December.
Both gold and silver prices continued to fall as investors shunned these safe havens in particular. The gold price fell by more than 5% and that of silver by nearly 8%, with both metals’ recent price movements now moving towards an ‘oversold’ status contrary to their positions just a couple of months ago.
Finally, parts of the fixed income markets were volatile, particularly UK inflation-linked government bonds which saw large swings related to the Chancellor’s reclassification of inflation measures in his spending review. Most sectors ended the week with positive returns however, with UK Gilts rising by 0.9% and both investment and sub-investment grade bonds close behind.
This week should see greater clarity around the status of the AstraZeneca vaccine which while reporting initially positive results last week came under subsequent scrutiny with regards the provenance of its dosing regimens and the data behind them. The UK is still pushing for the vaccine to be approved by the Medicines and Healthcare products Regulatory Agency (MHRA), while NHS hospitals have been told to prepare to ‘mobilise’ from as early as Wednesday 2nd December, as the Pfizer vaccine is expected to gain approval this week.
We hope that this is indeed the case and that we can begin to move towards an exit from the pandemic. As mentioned last week, recent optimism has driven a rotation within equity markets away from more richly valued companies, sectors and regions and towards those lowlier valued as a recovery takes hold. With positive vaccine news feeding into a more positive virus narrative, monetary and fiscal policy set to remain loose, and domestically, Brexit uncertainty to hopefully continue to fade away, we think the scene may be set for this trend to continue.
Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (30th November 2020)