Market Update – 17th February 2021.

Economic data releases have been light so far this week given a number of markets have been closed (for example, the US was closed on Monday for President’s Day, while a number of east Asian markets have been closed for the Lunar New Year).

However, this has done little to stop those equity markets that have been open from moving higher, thanks to continued reflation optimism due to the rollout of the coronavirus vaccine and US fiscal stimulus.

Despite the fact that the media would have us believe that the UK is about to see a surge in unemployment and has lots of empty ferries and lorries thanks to a massive drop in trade since Brexit, the UK’s FTSE-100 has been a big winner this week.  Thanks to the UK’s faster vaccine rollout, along with government and central bank support, an easing of the lockdown restrictions is now clearly visible on the horizon – which should lead to a sharp economic recovery.

Additionally (and more importantly), the FTSE-100 will be a big beneficiary of the global economic recovery, as mining and energy companies account for just over 20% of the FTSE-100 – and commodity prices continue to rally strongly on reflation optimism.  The oil price in particular is providing a strong tailwind, as cold weather in the US has cut a large percentage of US oil production – and thanks to recent OPEC production cuts, the oil supply/demand appears to be back in balance after last year’s coronavirus induced demand slump.

Furthermore, yesterday (Tuesday 16 February 2021) both BHP and Glencore (diversified miners) announced results.  Not only did both companies give optimistic trading outlooks, but in a sign of confidence, Glencore said it was reinstating its dividend and BHP increased its dividend pay-out to a record high.

Elsewhere, Japan’s economic recovery held up better than economists expected.  While Japanese GDP growth in the final quarter of 2020 was inevitably going to be slower than the massive 22.7% quarter-on-quarter growth in Q3, Q4’s GDP increase of 12.7% was much higher than the 10.1% economists had expected.  While Q1 2021 is likely to see a contraction given the coronavirus state of emergency that was called at the start of the year, the strength of Q4 suggests that we should see a rapid recovery in Q2 & Q3 2021.

Investment Management Team

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