Global stocks ended the year on a strong note, boosted by further US fiscal stimulus, a Brexit deal, and a growing number of countries approving COVID-19 vaccines. However, COVID-19 cases continued to surge, particularly in Europe.

UK

The FTSE 100 slid 1.1% over the final two weeks of 2020, as sterling strength weighed on the overseas earnings of multinational companies. The index closed the year around 14% lower, its worst annual performance since 2008 due in part to its significant weighting to oil companies. However, the FTSE 250 of mid-cap stocks, which is more focused on the domestic economy, rallied strongly in the final three months of the year, leaving it on track for its best quarter since 2009.

The UK and EU finally reached a deal on their future trading relationship. The economic and security agreement guarantees tariff-free trade on most goods and creates a platform for future co-operation on issues such as data sharing.

The chance of a double-digit recession increased when a new strain of COVID-19 that is far more contagious forced millions more people into the toughest Tier 4 restrictions. European and other governments responded swiftly with travel bans to/from the UK and France shut cross-channel traffic, causing chaos at the port of Dover.

The UK will start to roll out its second COVID-19 vaccine in the first week of January after the regulator approved the University of Oxford/AstraZeneca vaccine. Almost 1m people received the BioNTech/Pfizer vaccine in December. However, as COVID-19 cases soared, the UK government changed its inoculation approach. The strategy will now focus on giving as many vulnerable people as possible the first dose of a vaccine, with the second to follow 3 months later rather than 3 weeks.

UK shareholders in Ryanair and Wizz Air will lose their voting rights come 1 January 2021. Both airlines are taking steps to ensure they will remain majority EU owned. EasyJet said it would suspend voting rights of some investors, if necessary, to raise its EU voting base above 50%.

US

The S&P 500 rose 1.3% over the fortnight. The rally took the index to a fresh high in the closing days of the year and meant the index recorded gains of around 18% over 2020, while the technology focused Nasdaq Composite has gained more than 44%, its best performance since 2009, as work and consumer spending moved online.

President Donald Trump signed a bill to inject $900bn of stimulus into the world’s largest economy. In a surprise move, the president backed an increase in increase direct payments to Americans from $600 a person to $2,000. While this was enthusiastically welcomed by the Democratic-controlled US House of Representatives, Republican Senate majority leader Mitch McConnell blocked Democratic attempts to quickly adopt the higher payments. The outgoing president, whose veto on the defence bill was overruled for the first time by Congress, is still challenging the election result.

US jobless claims sank for two consecutive weeks, having hit a three-month high in November.

US consumer spending fell by 0.4% in November, the first decline since the spring. Personal incomes also fell 1.1% over the month amid the decline of the Paycheck Protection Program loans to businesses and other federal assistance measures.

Europe

The FTSEurofirst 300 inched higher by 0.2% over the two weeks. European shares ended the year with modest gains. Germany was one of the strongest markets in the region, but returns in France, Spain and Italy were all negative.

The EU and China unveiled a long-awaited business investment deal. The deal will remove some barriers to EU companies’ hopes of investing in China, such as specific joint-venture requirements and caps on foreign equity. Industries where the EU has secured improved access terms include automotive, private healthcare, cloud computing and ancillary services for air transport. For Beijing, the deal will lock in existing market access rights while securing some openings in the areas of manufacturing and renewable energy. The deal risks incurring the incoming US administration’s ire amid concerns it does not do enough to combat forced labour.

Japan

The Nikkei 225 advanced 2.5% over the two-week period, closing the year near a 30-year high.

Pacific Basin

The MSCI Asia-Pacific ex Japan closed the year at an all-time high.

China’s CSI 300 index of Shanghai and Shenzhen-listed shares rose to its highest point since 2015 as the EU and China prepared to announce an investment treaty.

The Chinese authorities publicly rebuked Ant Group, Alibaba’s payments-focused sister company, for alleged regulatory failings.

Bonds

The yield on the 10-year US Treasury bond closed 2020 at 0.92%, while the 10-year German Bund yield ended at -0.58%.

UK Gilt yields rose slightly as the Brexit agreement was viewed as reducing the chance of the Bank of England pushing rates into negative territory.

Currencies

The British pound closed December above $1.36, its highest point for the year, as the UK parliament approved the post-Brexit trade deal with the EU that was finalised on Christmas Eve. Other gainers over the year included the Swedish krona, which rose 14.5% against the US dollar over the year, and the euro and yen, which gained 9.5% and 5.3% respectively.

Commodities

Brent crude closed the year around $51 a barrel, a fall of around 20% over the course of 2020.

Image by Pete Linforth from Pixabay