As was hinted at last week, Boris Johnson unveiled a gradual roadmap for reopening on 22nd February that will see restrictions eased over four steps spread across at least four months. The roadmap will be underpinned by four key ‘tests’ that are linked to data, including those related to vaccine roll-outs and efficacy, hospitalisation rates and ‘unforeseen risks’ from possible new variants.
The 21st June is mooted as the date at which full normalisation will be able to occur, though as you might imagine, this in our eyes leaves a lot of room for slippage. For example, beneath the roadmap sit four reviews that the Government is conducting to try to answer questions around matters such as social distancing, mask wearing and congregating in large groups. All these questions need to be answered before restrictions can be consigned to the dustbin, and given the caution exhibited to date we find it difficult to believe that complete freedom will be allowed by June.
Close to 40% of UK adults have received a first vaccine dose, with second doses now being administered in gradually larger numbers and the timetable for future jabs brought forward given the roll-out’s success. These numbers include the vast majority of those ‘at risk’ from Covid, and we find it increasingly difficult to understand the reticence to loosen lockdowns.
In Europe, vaccination numbers remain unimpressive, but though there are signs that Covid cases are beginning to rise in some nations, conditions remain generally easier than in the UK, with German Chancellor Angela Merkel holding talks this week on a possible further easing of lockdown restrictions.
In the US, President Biden’s $1.9tn stimulus bill was guided through the House of Representatives in a boost for his efforts to support those hard-hit by Covid restrictions. The bill contains measures for $1,400 stimulus cheques, enhanced jobless benefits and fresh funding for vaccines and testing and must now move through the Senate, where it will face challenges particularly around the inclusion of a $15 minimum wage measure. Regardless, the bill will pass in some form, and represents another enormous fiscal boost which some worry may be too much at this time given the relatively positive state of affairs in the US.
We saw a tumultuous week in markets as the rise in global bond yields continued amidst more positive economic sentiment and higher expectations of inflation. As outlined last week, this had the effect again of negatively impacting particularly global technology stocks which fell sharply in absolute and relative terms as valuation prospects were re-rated downwards, and a further rotation into cheaper ‘value’ stocks occurred.
The UK was a relative outperformer again, though both the FTSE 100 and 250 indices fell by 1.9% and 0.6% respectively. Beneath the index level, those strategies biased towards value stocks performed strongly in absolute terms, rising up to 2%, whereas those focused more on Covid ‘winners’ fell sharply.
This was a theme replicated across global equity markets to a greater or lesser extent, regardless of how good or poor the headline index return was. In Pound terms, European and US equities fell by 2.1% and 2.2% respectively, but deeper losses were seen in Japan (-4.2%) and Asia (-6.1%); the latter being a region whose equity market has become increasingly dominated by large technology stocks.
In bond markets, sharp losses were also seen, with Gilts falling by 2.0% despite a recovery at the end of the week, and investment grade corporate bonds falling by 1.2%. Gold and silver prices rose at the start of the week but faded to end down between 2.5-2.9% as the US Dollar rose versus other currencies.
In the week ahead we will see ‘final’ PMI data for various global regions which will provide important signposting for the economic outlook, along with the always-important US jobs number for February which is expected to bounce back from a disappointing January to a consensus 180,000. Equity markets have recovered at the start of this current week, but we fully expect volatility to return in future months.
Head of Portfolio Management
The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.