Market Update

What a week it has been!
Undoubtedly, it was a week marred by historical lows, with distressing scenes of protesters storming Capitol Hill in Washington and the relentless surge in global coronavirus cases leading to tighter lockdown restrictions worldwide. However, amid this grim backdrop, equity markets, particularly the FTSE-100, experienced a historically upbeat week, marking its best start to a new year on record with a remarkable gain of 6.39%.
The surprising resilience of the equity markets, despite the distressing events and the grim trajectory of coronavirus infections and deaths, can be attributed to the Senate run-off elections in the state of Georgia.
In a significant turn of events, the Democrats emerged victorious in both Senate seats, flipping control of the Senate. This shift means that the Democrats now hold the reins of both houses of Congress and the White House. While a unified Democrat-led government carries both positive and negative aspects, what matters most in the immediate context is the highly anticipated massive fiscal stimulus package expected to support the US economy. This development is a substantial positive, especially for the UK equity market. Joe Biden's proposal to invest nearly $2 trillion in US infrastructure programs will drive demand for essential industrial metals like iron ore and copper. These commodities, along with commodity stocks, constitute over 20% of the FTSE-100 index, explaining the UK market's outperformance against its global counterparts.
Coupled with widespread vaccine distribution and the anticipated economic recovery in 2021, these factors suggest that the stars might finally be aligning in favor of the FTSE-100.
Further bolstering market sentiment this week were positive economic indicators.
Following the impressive US ISM (Institute for Supply Management) data covered in the Mid-Week Market Update, the US ISM services index surpassed consensus estimates of 54.5, registering a robust reading of 57.2 (up from 55.9 in November). November's factory orders also outperformed expectations, growing by 1% instead of the estimated 0.7%, and October's growth was revised upward from 1% to 1.3%.
Although the US employment data revealed a loss of 140,000 jobs in December, revisions to job gains in October and November totaled 135,000, leaving the unemployment rate unchanged at 6.7%.
Additionally, minutes from the recent US Fed monetary policy meeting indicated that policymakers currently do not perceive any inflationary risks. This, combined with an unemployment rate nearly double that before the coronavirus outbreak, suggests that the Fed is far from contemplating a shift from its accommodative monetary policies. This stance bodes well for global equity markets.
Looking ahead to the coming week, a plethora of US data awaits, including CPI figures, the Fed's Beige Book, retail sales, the Empire State Manufacturing Survey, industrial production data, and the University of Michigan Consumer Sentiment index. Additionally, we can anticipate UK industrial and manufacturing production data, UK GDP for November, Chinese import/export statistics, trade balance data, and Eurozone industrial production figures.