The week in review

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What’s happened in markets?

Figures in the respective local currencies as at the end of trading on 12/3/2021.

While vaccine programmes have engendered headlines about the reduced number of infections and hospitalisations – coverage which was further supported by GlaxoSmithKline’s statement that its monotherapy drug for early COVID-19 treatment of high-risk adults was found to be 85% effective in reducing hospitalisation or death – the EU vaccine programme came under further pressure as several member countries halted the rollout of the AstraZeneca/Oxford University jab over fears it was linked to an increase in blood clots. Although the scientists reviewed the data and stated there was no link, many authorities remain unconvinced.

More positive news also stemmed from President Biden signing the US$1.9 trillion American Rescue Plan into law after two months of negotiations. The package includes a direct US$1,400 payment for individual Americans, a US$300 per week unemployment supplement and funds towards a vaccine distribution that promises inoculations being made available to ever adult US citizen from the start of May.

This and the rapid rollout of many vaccine programmes led the Organisation for Economic Co-operation and Development (OECD) to report that it expected a stronger rebound from the 2020 recession than previously forecast as it revised this year’s global growth forecast up by 1.4% to 5.6%.

We also saw the latest US inflation data published, with the core consumer price index rising by 1.3% compared to this time in 2020. And the UK’s January gross domestic product number came in better than expected, down -2.9% versus December 2020, instead of the 4.9% forecast. Meanwhile, the UK’s exports to the EU fell by 40.7% in January, and imports dropped by 28.8% as the new trading measures due to Brexit came into force.

Oil prices fell back, after quite a sharp rise to over US$70 a barrel at the start of the week of 8 March, following an attack on Saudi Arabia’s energy facilities. Saudi Arabia was quick to reassure that oil production had not been affected and that the distribution from the affected area continued as normal.

In markets, all regions posted positive performance, apart from Asia ex Japan (-0.56%), with Europe ex UK leading the way (+3.41%), followed by the US (+2.10%). Style-wise, value (+2.15%) continued to claw back performance versus growth (+1.65%), and year-to-date is up +6.70% versus growth’s -1.40%. Among sectors, utilities (+3.74%), consumer discretionary (+3.40%) and real estate (+3.15%) were the best sectors, while healthcare (+1.09%) lagged. Small capitalisation stocks (+3.87%) continued to outperform their large peers (+1.73%).

What’s happened in portfolios?

It’s worth stepping back this week and looking at the shift in the narrative as markets start pricing in life post the pandemic. Yes, markets are always forward looking, but this is very clear given the anticipation of sharp upticks in economic activity and output.

However, markets remain choppy, although we are starting to see the unloved, value stocks of the last five years pick up momentum versus their growth peers. And while it is difficult to look at the week of 8 March in isolation – after all we do constantly talk about investing being a long-term option – trends are beginning to form.

Meanwhile, the bond market is seeing the longer end of the maturity curve steepen. This is where our short duration positions, which have been the best fixed income investment in the last few weeks, continue to prove valuable, in spite of the negative impact they had in 2020. However, with the US Treasury breakeven inflation curve inverting, as short-term rates traded above the long-term ones, it appears that investors are begging to believe the Federal Reserve’s stance that any pickup in inflation will rapidly fade.

What’s happening this week?

17 Mar • Federal Reserve meeting | 18 Mar • Bank of England meeting | 19 Mar • Bank of Japan meeting