Investment market update: January 2021

As we start 2021, there are reasons to be optimistic and some of this is showing in market movements. However, there are still obstacles which could have an impact on investments in the coming months.

The International Monetary Fund has upgraded its global outlook for this year by 0.3%, taking expected growth for 2021 to 5.5%. While only a marginal uptick, it does suggest that there are reasons to be positive.

UK

The UK has started rolling out its Covid-19 vaccination programme, with plans to vaccinate all adults by autumn 2021. However, headwinds are still affecting businesses as we start the year with a third national lockdown.

Chancellor Rishi Sunak unveiled additional Covid-19 support for businesses at the start of the month. Amounting to £4.6 billion, it includes one-off top-up grants for retail, hospitality and leisure businesses worth up to £9,000 per property.

Despite ongoing support, UK GDP fell 2.6% in November 2020, breaking a six-month run of growth and unemployment that reached a four-year high of 5% in the three months to November.

The annual Budget will be held in March and further support is expected to be announced then.

Retail has been one of the most affected sectors during the Covid-19 pandemic. However, the figures from January highlight how it’s a tale with two sides.

While some firms have posted strong Christmas sales, including Asos, Tesco and Lidl, others have struggled to balance the books. Retail sales between November and December increased by just 0.3% according to the Office for National Statistics. This is far below forecasts of 1.2% at a time that was pivotal for many retail businesses. Primark, which has no online store to buffer the impact of closing physical shops, faces a £1 billion sales hit due to the third lockdown.

Debenhams and the Arcadia Group were two high-profile retail collapses at the end of 2020. Online fashion store Boohoo is now set to snap up Debenhams for £55 million, while Asos is in talks to acquire some of the Arcadia brands, including Topshop.

Another sector struggling is travel. It’ll come as no surprise that passengers at Heathrow for 2020 were down 73%. As the vaccine programme continues, it’s hoped that holiday bookings will rise.

A Brexit deal was finally reached in 2020 with just days to go before the deadline. But business concerns are still present. The CBI Industrial Trends survey found concerns over supply distribution are at the highest level in over 45 years. Nearly half of the 291 firms questioned said they are worried that access to materials or components will affect output in the coming months.

Europe

There are some positive signs from Europe, despite the eurozone contraction in December being worse than thought. The final eurozone PMI composite output index was 49.1, placing it in negative territory.

Among the positive news is the manufacturing sector strengthening. Manufacturing in the Euro area reached its highest level since May 2018, with a reading of 55.2, placing it firmly in the growth range.

There was also a surprise jobless rate fall. Unemployment in November across the EU was 8.3%, compared to 8.4% in October. However, unemployment among young people (under 25) highlights how this demographic is being affected by the pandemic; some 18.4% of young people were unemployed.

While the German economy shrank by 5% in 2020, industrial production is now strong, with output increasing by 0.9% in November. It fuels hopes that the economy could avoid a double-dip recession. With Germany often seen as the stalwart of the EU, it’s a good signal for the wider area too.

US

In January, Joe Biden was inaugurated as the 46th president of the United States. However, he’s set to face some significant challenges in the coming months.

Figures show that 140,000 jobs were lost in December, ending seven months of job growth. Unemployment is now at 6.7% as Covid-19 infections rise. The IHS Markit PMI shows private sector growth is also weakening. While, at 54.8, it’s still in growth territory, suppressed customer demand is having an impact.

This is reflected in business confidence too. The National Federation of Independent Businesses’ index reports business optimism at 95.9 in December. This compares to 101.4 in November and the long-term average of 98. It’s the lowest reading since May. The downturn is linked to concerns about sales outlooks and business conditions as the pandemic continues.

Asia

China’s economy grew faster than expected in the final quarter of 2020, making it the only major economy to expand last year. Figures released by China’s National Bureau of Statistics show GDP was up 6.5% in the last three months of 2020 following growth of 4.9% in the third quarter.

Remember to keep your long-term financial plan in mind when making investment decisions. Keep an eye on our blog for the latest market updates and more financial news.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

 

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