US equities rallied, boosted by optimism over Joe Biden’s planned fiscal boost. However, many other developed stock markets weakened as COVID-19 cases continued to soar.

UK

The FTSE 100 slid 0.6% over the week.

The IHS Markit/Cips composite purchasing managers’ index fell to a weaker-than-expected 40.6 in January. This was the lowest reading in eight months. As the country entered its third lockdown, services sector activity fell to 38.8 in January, which accounts for around 80% of the overall economy, compared with 49.4 in December.

UK retail sales rose just 0.3% in December. Over 2020, retail sales dropped 1.9%, the worst outcome since records began in 1997.

UK inflation, as measured by the consumer price index, rose at an annual rate of 0.6% in December, up from 0.3% in November. Recreational and cultural activities were the biggest drivers of December’s rise in inflation and prices for transport and clothing also increased.

US

The S&P 500 jumped 2.1% over the week, reaching a fresh record high, as financial markets were cheered by Joe Biden’s inauguration at the 46th US President and the promise of $1.9trn in fiscal support. The new president swiftly overturned some of Donald Trump’s actions, signing orders to rejoin the Paris climate accord, halting the US withdrawal from the World Health Organization and scrapping a ban on entry to the country by citizens from some Muslim-majority nations. The outgoing president’s impeachment trial in the Senate will commence on 8 February 2021.

Janet Yellen, the new US Treasury secretary, made the case for large-scale fiscal stimulus to cushion the economic blow from Covid-19, saying that “with interest rates at historic lows, the smartest thing we can do is act big”.

The IHS Markit composite purchasing managers’ index came in at 58 for January, an increase on the previous month’s figure of 55.3.

Europe

The FTSEurofirst 300 inched higher by 0.2% over the week.

The flash reading of the IHS Markit eurozone composite purchasing managers’ index fell to 47.5 in January, down from 49.1 in December. The French composite index fell to a weaker-than-expected 47, while Germany exceeded expectations with a reading of 50.8, although that was down from the previous month’s 52.

Japan

The Nikkei 225 gained 0.4% over the week.

Pacific Basin

China’s economy expanded by a stronger-than-expected 6.5% in the fourth quarter of 2020. Over 2020, GDP grew 2.3%.

Emerging Markets

The MSCI Emerging Markets Index reached a record high, having risen more than 8% since the start of January. Emerging market stocks have been boosted by strong inflows as investors bet on a return to international norms and further weakness in the dollar that would make it easier for EM borrowers to service their debts.

Bonds

The yield on the 10-year US Treasury bond closed the week at 1.09%, while the 10-year German Bund yield closed at -0.51%.

Currencies

The British pound rallied after stronger-than-expected UK inflation data and continued success in vaccine rollout took the pressure off the Bank of England to implement negative UK interest rates.

Image by Gerd Altmann from Pixabay