News & Insights
MARKET CONTEXT: Vaccine announcements are resetting the world’s economic expectations
Global Macro: In November, Pfizer, Moderna, and AstraZeneca confirmed the efficiency of their vaccines, to be rolled out in 2021. The announcements provided more clarity on the economic recovery. However, going forward, we expect the economic world to be different as humans adapt and change their habits. We believe “work from home” policies will become more prevalent in the corporate world, even after the COVID pandemic is behind us, while people are becoming more conscious about health in general. Moreover, we think the green wave and ESG trend in the investment world will accelerate. The Darwinian changes, triggered or accelerated by the COVID pandemic, will progressively be reflected in the financial markets, generating rotations across sectors, regions, and asset classes.
Financial Markets: Equity and credit had one of the strongest rallies this year in November, fueled by a sectorial rotation that was accelerated by the vaccine announcements. Meanwhile, the uncertainty about the US presidential election has been lifted. Nonetheless, cyclical sectors (financials, industrials, energy) and regions (Europe, Asia) with the lowest valuation still have significant upside potential as many of these markets still suffer from negative performance year to date and have yet to recover to their highs of 2018. China’s economy kept leading the world recovery as witnessed by the country’s robust and accelerating service and manufacturing PMI (Purchasing Managers’ Index) figures in November. As a result, foreign investments continued to flow into China through Hong Kong, Shanghai, and Shenzhen, supporting the strengthening of the RMB, underpinned by the secular depreciation of the USD (down more than 5% year to date against the major developed currencies, including CNY). While Trump continued to impose sanctions on Chinese corporations and officials, China joined the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement between Asia-Pacific nations, such as Japan, South Korea, and Australia.
Equity: Month to date the S&P 500 gained 10.5%, Euro Stoxx 50 +19.3%, Hang Seng +9.3%. Fixed Income: 10-year US yield edged down 2bps in November to 0.84%. Emerging market government bonds rebounded 4.0% in USD and 6.3% in local currencies. High-yield corporate bonds went up 4.5% in EUR and 1.3% in USD. Currencies: USD weakened in November: EUR +2.9%, CNY +1.8%, AUD +5.1%; safe haven JPY +0.7%, CHF +1.4%. Commodities: Oil prices rebounded in November while gold prices further decreased: WTI Oil +25.6%, Gold -5.6%.