2H December Global Market Recap
16th December 2020 – 31st December 2020
Latest data from personal income, personal spending, retail sales and jobless claims added to growing signs of slowdown in the recovery of US economy. After months of difficult negotiations, US Congress finally passed US$900bn stimulus package on 21st December, the second largest economic relief bill since the US$2 trillion stimulus package in March 2020. Euro zone saw decent rebound in December as shown in manufacturing and service PMI indexes, supported by rising exports and a robust recovery from Germany despite the resurgence of virus and tough lockdowns. UK and EU finally reached an agreement on Brexit on 24th December which took effect on 31st December 2020 after months of negotiation. The agreement includes zero tariffs or quotas on all goods between UK and the EU, as well as provisions to support financial and legal services, transport, and a vast range of issues.
China’s economy remained robust despite slight drops in both manufacturing and service sector sentiments as shown in PMI indexes. Both indexes remain in the expansion zone for 10 straight months.
2020 was an unprecedented and dramatic year for the stock markets. Global stock market rebounded swiftly and strongly from March lows fueled by massive stimulus package, unlimited liquidity injections and ultra-low interest rate environment carried out by global central banks, despite the worrying global economic outlook. The stock market ended a strong month with all major indexes edging higher in December. The S&P 500 Index and Dow Jones both rose to all-time highs supported by new spending bills and vaccine hopes against the backdrop of severe economic slowdown. The Nasdaq increased 44% than the beginning of the year, S&P 500 and Dow Jones were 16.6% and 7.5% higher, respectively. Chinese stocks were among the top performers with ChiNext Index up 65.7%, Shenzhen Component Index 39.6% higher and China’s benchmark CSI 300 index up 27.7%, closed at a five-year high fueled by widespread coronavirus vaccine distribution and robust economic recovery.
U.S. treasury yields remain relatively stable in the second half of December as US congress passed the long-awaited US$900bn second stimulus package of COVID-19 aid. Chinese government bond yields fell, and the 10-year yield dropped by 10.71bps, after hitting a one year high of 3.36% the previous month. This is the first monthly drop after registering an 8th consecutive month of increase. In the final five weeks of 2020, the PBOC injected a net US$84bn in one-year funding and US$8bn of short-term cash. The injections have helped calm money markets and arrest the longest selloff in government debt since 2007.
Across the board, major CDS indices and OAS indexes dropped in December as the global economy continues to recover. Overall, the sentiment in credit market remained positive and credit spreads head towards pre-COVID levels as vaccination across some countries begun.
Most major international currencies appreciated against the dollar on the back of the start of vaccination across some countries. The dollar index hit an 8-month low on 30th December as international economies continue to recover. Chinese Yuan has been appreciating against the dollar for the 7th consecutive month and hit its strongest level since June 2018. The AUD strengthened by 4.9%, rising to its highest against the dollar in more than two years as iron ore prices continues to climb due to increased demand from China despite the government calls for sharp cuts in the country’s steel output and the dwindling supply and disruptions caused by storms hitting Australia.
With the start of vaccination across some countries and the recent second US stimulus package, Brent and WTI crude oil prices continue to rise in December, increasing by 7.4% and 5.7% respectively as the market expects demand to be back quicker on hopes of a faster pace of economic recovery. US natural gas price fell by 12.4% as consumption is expected to decline year over year in 2020 according to the EIA. Silver price rose sharply by 16.5% while Bitcoin price surge by 45.7% as investors continue to bid prices up and has hit its all-time high. Bullish sentiments from investors are due to claims that the volatile cryptocurrency is on the way to becoming a mainstream payment method.