Market Commentary – December 2020


The Bank of England, in a unanimous vote, decided it will pump an additional £150bn into government bonds as it attempts to support further spending in the economy. This is at the top end of estimates, which ranged from £50bn to £150bn, and comes just as the UK enters another coronavirus lockdown at the start of November. QE has proven a controversial policy over the past decade as doubts persist about its true impact beyond pushing asset prices higher and widening the wealth gap. The OBR forecasts government borrowing will be close to £400bn this year as public spending jumps above 50% of GDP. With little appetite for further austerity, it is likely the government will need to raise taxes as it attempts to bring the public finances back under control.

Following the Prime Minister’s Halloween announcement that England would go into a four week nationwide lockdown, Chancellor Rishi Sunak announced on the first day of lockdown that he has extended the furlough scheme paying up to 80% of wages until the end of March 2021, in a sign that the government is not banking on a speedy economic recovery. GDP grew by 15.5% in Q3 but remains below pre-COVID levels still, with the BoE also forecasting a double-dip recession for the UK, with GDP dropping 2% in Q4 of this year.

Housing, a key component of the UK economy, has enjoyed the strong supportive measures put in place by the government in the form of stamp duty cuts. While the general nation-wide housing market has picked up this year and at record pace, London apartment values are falling fast. The average price of an apartment in the UK capital fell by £40,000 over the year through September, with first-time buyers struggling to get mortgages approved and many homeowners are prioritising larger houses with more outdoor space, in what looks to be a key demand shift caused by increased working from home.


EU leaders will need to return to talks on how to get their jointly-financed economic recovery package back on track, after Hungary and Poland vetoed the accord on concerns regarding the so-called rule-of-law conditionality. This, they believe, unfairly stigmatises them over their own domestic standards.

The Euro area is sliding into another contraction as lockdowns inflict a massive toll. The composite PMI fell to 45.1 in November from 50, led by services, reflecting the closure of bars and restaurants and the hit to hospitality. Manufacturing grew, but at a slower pace. The widespread curbs mean the economy is set to shrink for a third quarter this year and may even suffer a double-dip recession.

The EU is keen to strengthen trading ties with the US once Joe Biden takes office, as it looks to repair and strengthen relations following a difficult and tense period under Donald Trump. The move is designed to head off the challenge posed by the rise of China as a major global economic powerhouse, and looks to increase cooperation on everything from digital regulation, fighting climate change and dealing with the COVID-19 pandemic and the resulting crisis. This comes as the EU is pushing to tax large US tech/internet companies who pay little tax in the region, despite their enormous revenues.


As far as elections go, the 2020 US election proved to be a much closer contest than opinion polls had projected, with President Trump achieving more than 70 million votes and stopping Biden and the Democrats gaining control of both Houses, meaning the predicted blue wave never came to fruition. A split house likely means Biden will be limited in any attempts to impose sweeping new reforms, creating greater certainty for market participants. Markets thus took the result extremely positively, with risk assets soaring to new all-time highs.

President Trump has been extremely slow to concede defeat and is currently pursuing multiple legal challenges contesting the results and claiming fraud over the legitimacy of postal ballots, something he has claimed several times in the run up to and during the election. President Trump has now all but conceded though and has instructed his officials to cooperate with a transition to Biden and his team.

Economically the US economy stands on firmer footing than it did a month ago. The US added 638,000 jobs in October, more than forecast, while the unemployment rate fell to 6.9%. This still has not returned GDP to pre-pandemic levels, showing just how heavy the economic impact has been.


Fifteen Asia-Pacific nations have concluded what is now the world’s largest free-trade deal this month. The Regional Comprehensive Economic Partnership, which includes China, Australia, New Zealand, and Indonesia brings together the largest trading nations in the region. This is an important moment for China which has been pursuing greater economic integration for a decade with a region that accounts for nearly a third of total global GDP.

Despite this trade deal, China has moved to add significant tariffs to key Australian goods including wine and coal. Beijing was unhappy with comments from Canberra calling for an inquiry into the origins of the COID-19 pandemic, which the Chinese government took as inflammatory. The economic impact is significant to Australia, which will see anti-dumping duties of between 107 and 212 per cent on wine, which producers estimate will hit annual trade worth A$1.2bn in what is its largest overseas market.

Domestically, in an apparent retaliatory response to comments made by Jack Ma, founder of Alibaba, the Chinese government suspended the planned listing of tech giant Ant Group, which would have been the largest in history. Ma has previously made comments criticising regulators, a risky move in a country that actively discourages any form of protest against the government and its authority.

Tensions between China and the US also escalated this month, as the US government issued a list of 89 Chinese companies, mostly aerospace, that would be unable to access US technology exports due to their military ties. This move will restrict the companies from buying American technology and goods and will add to already tense relations between the two global superpowers, just as Joe Biden prepares to officially replace President Trump in the White House.

Please note: The opinions expressed in this update are those of A&J Wealth Management Limited only, as at the 1st December 2020 and are subject to change. The update is for information purposes only.

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