Global Markets Update – Monday 18 January 2021

Covid-19 Test

Global equities lost ground as the COVID-19 crisis intensified, with the emergence of two new variants in Brazil adding to the UK and South African mutations.

The UK removed its travel corridors, requiring all passengers to test negative before travelling to the country followed by a quarantine period. German chancellor Angela Merkel warned that the country’s strict measures may last another eight to 10 weeks, while the Dutch government extended the nation’s coronavirus lockdown by three weeks. Japan declared a “soft” state of emergency in and around Tokyo, while three cities in China’s Hebei province have been locked down.


The FTSE 100 declined 2.0% over the week.

The UK economy shrank 2.6% in November, as England experienced its national lockdown. While the contraction raises fears of a double-dip recession in the UK, it was less severe than expected as the manufacturing and construction grew. UK GDP fell 8.9% over the first 11 months of 2020.


The S&P 500 fell 1.3% over the week.

Donald Trump was impeached for inciting the violent insurrection on the US Capitol.

President-elect Joe Biden unveiled a $1.9tn stimulus plan, including $1tn for households, with an additional $1,400 in direct payments to all Americans which supplements the funds given in December 2020. The relief proposal includes $415bn to fight the virus, $350bn for state and local governments dealing with the fallout from the coronavirus crisis, and $440bn for small businesses.

Federal Reserve chairman Jay Powell reiterated that a US interest rate rise is not in the cards until inflation reaches 2%.

US retail sales dropped by a weaker-than-expected 0.7% over the month of December.

Weekly initial claims accelerated to 965,000, the highest level since August.

JPMorgan Chase, Citigroup and Wells Fargo released a total of more than $5bn of pandemic-era loan loss reserves, in a sign of their optimism that defaults will be lower than previously feared.


The Nikkei 225 rose 1.4% over the week.

Pacific Basin

China’s CSI 300 index jumped to its highest level since 2008. Mainland Chinese investors have also poured in Hong Kong’s stock market, which has suffered following Trump administration sanctions targeting top Chinese tech groups, many of which are listed in Hong Kong. Mainland purchases of Hong Kong shares via the Stock Connect schemes hit a new daily record of $2.5bn.

China’s trade surplus hit a record $78bn in December, as exports grew 18.1% while imports rose by 6.5%.

Emerging Markets

India started to inoculate its population of 1.4bn people using Covaxin, a vaccine developed by Hyderabad-based Bharat Biotech. However, as with the Russian vaccine and China’s Sinovac one, the roll-out is mired in controversy given phase 3 trial data has yet to be released.


The yield on the 10-year US Treasury bond touched a 10-month high of 1.17% before closing the week at 1.09%. Expectations of further fiscal stimulus have driven the 10-year US break-even inflation rate above 2% for the first time since 2018, while the 5y/5y inflation swap is at the highest level since the global tapering in end-2018.

Demand for US municipal bonds surged as the incoming US administration revealed plans for cash-strapped states and local governments. Since the Georgia Senate run-off, investors have directed $2.5bn into funds that invest in municipal debt, the largest inflow in at least a decade, according to EPFR. Rival data provider Lipper estimated the inflows were the third biggest in its records dating back to 1992.

The 10-year German Bund yield ended at -0.54%.


Brent crude reached a 10-month high of $56.75 a barrel following Saudi Arabia’s pledge last week to cut oil output as well as hopes of fuel demand rebounding but closed the week off its best levels.

Image by Gerd Altmann from Pixabay