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Central banks remain dovish despite inflationary signs

President Biden pitches $4 trillion in economic spending

Equities continue rise amidst low-rate environment

Vaccination progress continues, but India struggles

Central banks keep policy frameworks unchanged

On April 28, Federal Reserve (the “Fed”) Chairman Jerome Powell announced the continuation of near-zero interest rates and monthly Treasury bond and mortgage-backed security purchases of $120 billion or more until the U.S. economy shows substantial recovery from the COVID-19 pandemic.

Chairman Powell added that he sees bubbles in certain asset prices following the accelerating vaccine rollout and the reopening of the economy. Powell reiterated that the expansive monetary policy will be maintained until inflation exceeds 2% moderately “for some time” and that persistent rising inflation is unlikely until the labor market recovers significantly, which would “take some time.” Inflationary indicators are likely to be transient given the supply chain constraints caused by the pandemic.

The Fed shed light on the pick-up in economic recovery as vaccination progress, fiscal policy, and President Biden’s $1.9 trillion stimulus plan strengthened economic indicators and employment. The hardest hit industries “remain weak but have shown improvement” since March. Economic recovery still depends heavily on the pandemic and risks to recovery still abound.

On April 22, the European Central Bank (the “ECB”) kept its policy unchanged, maintaining interest rates at -0.5% and buying up to €1.85 trillion of eurozone bonds through March 2022. ECB President, Christine Lagarde, stated that maintaining favorable conditions during the pandemic is essential for economic recovery. Last month, when government bond yields were rising in the euro area in tandem with U.S. yields, the ECB said that it expects to increase its bond purchases. Data from Deutsche Bank shows that the ECB purchased €74 billion in bonds in March, up from €53 billion and €60 billion in February and January, respectively. On April 26, the ECB announced that it purchased net assets of about €32 billion in the week ending April 23 compared to €17 billion the week before. Lagarde said that economic data and indicators suggest that “economic activity may have contracted again in Q1 but point to a resumption of growth in Q2.”

President Joe Biden’s administration tackled key policy issues during his first 100 days in office, ending on April 30. In December, President Biden set a goal of 100 million COVID-19 shots, which was achieved on the 59th day of his administration. By April 27, 230 million vaccination shots were administered. The U.S. has vaccinated around 96 million people fully, more than any other country, after having the highest COVID-19 death toll. The next challenge is tackling vaccine hesitancy among Americans.

Another relief bill passed on March 10 included direct payments of $1,400, an extension of weekly unemployment payments of $300, and almost $20 billion for vaccine development and distribution. The relief bill and efficient vaccine rollout are expected to lead to economic growth of 7% this year.

A day before the 100-day milestone, President Biden made his first address to a joint session in Congress in which he announced new proposals, including a $2 trillion American Jobs Plan (primarily infrastructure) and a new $1 trillion American Families Plan that includes free community college, family care, and paid family and medical leaves.

The US labor market recovery accelerated in April 2021. Unemployment fell slightly to 6.0% in March from 6.2% in February. Non-farm payrolls rose by 917,000 in March. Weekly initial unemployment benefit claims fell by 39,000 in the week ending April 17 from the previous week to 547,000, the lowest level since March 2020 when it was 256,000. Applications for unemployment benefits reached a new pandemic low this month. Eurostat reported stable February 2021 unemployment in the euro area at the January level of 8.3%, but above the 7.3% in February 2020. Strict measures following the resurgence of COVID-19, the rapid spread of variants, and a slower-than-expected vaccine rollout have kept the euro area economic recovery behind the US and China.

Vaccine and stimulus boost growth forecasts

The US economic recovery is accelerating after a slowdown from Q4 2020 through January 2021. The growth outlook continues to improve as the vaccination campaign, the $1.9 trillion relief package, and business re-openings increase consumer spending and reduce layoffs. While annualized US GDP growth of 6.4% in Q1 2021 was slightly below estimates of 6.5%, it signals economic recovery and robust expansion. Consumer spending increased 10.7% in Q1 2021 compared to 2.3% in Q4 2020. Paradoxically, the savings rate also jumped to 21% from 13%, indicating that consumer spending will continue to grow. Nonetheless, the Fed estimates that about 8.4 million more people are unemployed than before the pandemic.

US retail sales jumped 9.8% in March across most categories as consumers received government stimulus checks, the largest monthly gain since the first wave of cases and lockdowns in May 2020. The bar and restaurant industry saw a 13.4% jump following the easing of restrictions.

The European Commission forecast 3.8% growth in the euro area economy in 2021 and 2022 after newfound optimism at the spring meeting of the International Monetary Fund (IMF), and hinted that the forecast for 2021 may increase further in the May projections. While the overall outlook for Europe remains gloomy, the IMF forecast 4.4% growth in 2021 with accelerating vaccine rollout and economic recovery in the second half of 2021.

Existing U.S. home sales fell 3.7% in March for the second consecutive month to a seasonally adjusted annual rate of 6.01 million, the lowest rate since August 2020. Record-low supply amid strong demand for housing continues to push prices to near record highs.

The Consumer Price Index (CPI) increased 2.6% year on year (YoY) in March and a seasonally adjusted 0.6% month on month. The YoY increase was the highest since August 2018. The largest contributor to the monthly rise was the 9.1% increase in gasoline prices in March.  Core CPI, which excludes food and energy, climbed 1.6% YoY and 0.3% from February. Prices are expected to continue rising following muted inflation for almost a year. The Fed expects the rise in prices to be temporary. CPI in the euro area increased 1.3% YoY in March, the highest since January 2020, while core inflation fell to 0.9% from 1.1% in February.

The IHS Markit US Manufacturing Purchasing Managers’ Index (“PMI”) rose to 60.6 in April from 59.1 in March. The IHS Markit Euro Area Manufacturing PMI rose for a 10th consecutive month to a record 63.3 in April from 62.5 in March, exceeding forecasts of 62.0 to the highest rate in over two decades.

Sovereign bonds yields anticipate inflation

Global government bond yields were on the rise after the 10-year US Treasury yield jumped due to rising inflation expectations and an anticipation of expansionary policies. On April 29, 10-year US Treasury yields peaked at 1.68%, the highest level in more than two weeks, before ending the month at 1.63%. The climb followed the release of Q1 US economic growth data and reached its two-week peak after President Biden announced a new $1.8 trillion proposal. 10-year inflation expectations, measured by Treasury Inflation Protected Securities, reached a peak of 2.41% in April, the highest level since April 2013. However, bond market pricing expect the surge to be temporary given that the five-year rate is above the 30-year rate. Germany’s 10-year bund yields closed at -0.20%,  its least negative yield since June 2020.

Equity markets shake off fears of rising rates

US equity markets rose in April after reports of strong corporate earnings, a record 21% surge in household income in March and an improved economic outlook. The S&P 500 rose 5.2% in April, its biggest monthly gain since November 2020. The Nasdaq and the Dow also rose 5.4% and 2.7%, respectively.  However, US stocks fell at month end as the surge in COVID-19 cases in India and Brazil threatened the overall global recovery.

European equity markets also rose in April with the STOXX Europe 600 and the UK FTSE100 rising 1.8% and 3.8%, respectively, amid an improving economic outlook with rising vaccine distribution and positive earnings reports. In Asia, the Hong Kong Hang Seng index rose 2.0%, the Chinese SSE Composite Index rose 0.1%, and the Japanese Nikkei 225 Index fell -1.2%. New economic data showed that China’s economic recovery may be slowing with official indicators of manufacturing and service activity falling below expectations in April.

Investment grade spreads tightened to 0.94% while high-yield spreads tightened to 3.24% from 3.36%, continuing the trend since peaking at 11.13% over a year ago. First-lien and second-lien spreads to maturity contracted to LIBOR + 3.84% from LIBOR + 3.86% and LIBOR + 7.11% from LIBOR + 7.26%, respectively. The yield-to-maturity of first and second-lien debt remains below year-end 2019 levels due to near-zero interest rates and unprecedented Fed support for the fixed income market.

Spot WTI and Brent crude oil prices posted strong gains this month but finished lower amid concerns over the global economic recovery and a worsening COVID-19 situation in India. However, the overall rally reflects rising energy demand, promising economic data, strong earnings, and higher economic forecasts. Spot WTI and Brent prices settled at $63.58 and $66.7 per barrel at month end, respectively from $59.16 and $62.74 in March.

Further oil demand recovery depends on how the pandemic situation evolves. The worsening COVID-19 crisis in India led to a drop in oil sales in the world’s third largest importer in April, halting the rise in oil prices temporarily. A further drop in fuel demand is expected in May as the second wave of COVID-19 peaks in India. However, the vaccine rollouts, the eventual lifting of lockdowns in Europe, and the reopening of economies globally are expected to boost oil demand. OPEC Plus agreed to increase production by more than 2 million barrels a day in a meeting on April 1. On April 27, OPEC Plus decided to raise oil production gradually by 350,000 barrels in May and June and 441,000 in July. Goldman Sachs predicts Brent to rise to $75 in Q2 2021 and $80 by Q3.

US dollar declines, gold rises, and Bitcoin surges

After a strong start to 2021, the US dollar began to decline in April after the Fed kept interest rates near zero, with the ICE US Dollar Index reaching a nine-week low of 90.4 against a basket of currencies on April 29, before edging higher after the latest US GDP report exceeded expectations and US Treasury yields increased. The ICE US Dollar Index ended the month down 2.1% from the previous month to 91.3. The overall decline in Government bond yields and the US dollar boosted demand for gold, but gold prices fell at month end to $1,767 per ounce due to rising US Treasury yields, inflation, and US GDP. Gold prices were still up 3% for the month and should stabilize as the climbs in bond yields and inflation are expected to be temporary. Meanwhile, on April 13, the price of Bitcoin reached a record $63,729, more than doubling since the start of the year, as investors awaited the IPO of cryptocurrency exchange Coinbase, valued at above $100 billion. Bitcoin later dropped to a low of $47,468 on April 23 before ending the month at $53,098. On April 14, the market cap of Coinbase exceeded $100 billion after its debut, before dropping to $85.8 billion when shares closed at $328.28.

Apple reported a 54% increase in companywide sales YoY. Fiscal year Q2 2021 (calendar year Q1 2021) revenues increased 53.7% YoY to $89.58 billion, 16% above estimates, while earnings per share (EPS) of $1.40 were 41% above estimates. Apple reported a second consecutive quarter of double-digit growth in every product category, with iPhone, Mac and iPad sales up 65.5%, 70.1% and 79%, respectively, YoY.

Amazon reported a 44% rise in Q1 2021 revenues to $108.52 billion YoY, exceeding estimates by 4%, while its EPS of $15.79 beat estimates by 66%. Amazon Web Services reported a 32% increase in net sales to $13.5 billion. Prime Day, which takes place in June, is likely to boost Q2 revenue.

Facebook beat estimates but warned that the changes in privacy settings in iOS 14 (asking users to opt in rather than opt out of data collection, which hinders ad targeting) and a worsening pandemic situation could impact its business in Q2. Q1 2021 sales grew 48% YoY to $26.17 billion, beating estimates of $23.67 billion, while EPS of $3.30 was above the consensus estimates of $2.37. Revenue growth is attributed to a 30% YoY increase in the average price per ad and a 12% increase in the number of ads shown.

Alphabet reported a 34% YoY rise in Q1 2021 revenues to $55.31 billion, 7% above the consensus estimates. EPS of $26.29 exceeded estimates of $15.82. The growth was driven by the 32% YoY rise in revenues from the advertising segments (Search and YouTube) to $44.6 billion, the fastest annualized growth in at least four years. Revenues from YouTube ads increased 49% YoY to $6.01 billion.

Microsoft revenues of $41.71 billion and EPS of $1.95 topped expectations by 2% and 10%, respectively. Revenue grew 19% YoY, the biggest quarterly increase since 2018. Cloud business revenue, including Azure and GitHub, grew 23% YoY. Productivity and Business Processes, which includes Office products and LinkedIn, grew 15%. Revenues of the personal computing unit, which includes Windows, gaming, devices, and search, increased almost 19% YoY to $13.04 billion.

Tesla reported Q1 EPS of $0.93, exceeding estimates by 18%, while revenue increased 74% YoY to $10.39 billion, exceeding estimates by barely 1%. GAAP quarterly net income reached a record $438 million driven by the growth in bitcoin and regulatory credit revenue. CEO  Elon Musk said the new Model S sedans will begin delivery in May 2021. CEO Musk and CFO Zachary Kirkhorn expect supply chain issues to remain a challenge in 2021.

The earnings of JP Morgan and Citi beat consensus estimates by 45% and 39%, respectively, as they continued to release loan loss reserves of $5.2 billion and $3.9 billion, respectively, amid an improved economic outlook. Their revenues of $33.1 billion and $19.3 billion, respectively, beat the expected forecast of $30.5 billion and $19.3 billion.

The EPS of Morgan Stanley and Goldman Sachs exceeded estimates by 31% and 82%, respectively, as a boom in special purpose acquisition company (SPAC) issuance in Q1 led to record investment banking and equity underwriting revenues. Goldman revenues increased 498% YoY to a record $17.7 billion, beating the expected $12.6 billion, while Morgan Stanley revenues increased 61% YoY to $15.7 billion, beating estimates of $14.1 billion.

Shopify and Qualcomm among biggest COVID-19 winners

Shopify was among the biggest winners of the pandemic as business restrictions accelerated the global shift to e-commerce. Shopify revenue increased 101% YoY to $988.6 million, beating estimates of $862.7 million. Q1 2021 EPS of $2.01 were more than triple the estimates of $0.75. Shopify shares surged 11.4% on April 28, but executives cautioned that growth may slow this year as the reopening of the economy continues.

Q1 earnings of Qualcomm, another pandemic winner, increased an annualized 51% to $7.93 billion, beating estimates of $7.62 billion, driven by demand for 5G phones. EPS of $1.90 beat expectations by 14%. Qualcomm President Cristiano Amon said that the company is utilizing its scale and global supply chain to weather the global chip shortage which should ease by year end.

Energy and Industrials earnings show signs of recovery

Large energy companies, like Exxon and Chevron, returned to profitability in Q1 after four consecutive quarters of losses following the recovery in oil demand and aggressive cost-cutting measures since last year. Both companies maintained their dividend payouts, while Chevron announced a 4% increase in dividends. The two oil giants held preliminary discussions for a potential merger over the past 12 months.

The revenues of Caterpillar, often considered a barometer for economic cycles, increased 12% YoY to $11.9 billion, exceeding estimates by 8%, driven by higher demand and an increase in dealer inventories that boosted sales volumes. The EPS of $2.87 beat the average estimates of $1.93

Consumer sentiment rises, market fear subdued

The Consumer Sentiment Index of the University of Michigan rose to 86.5 in April from 84.9 in March, the highest reading since March 2020, largely due to improving economic conditions and an optimistic outlook. Consumers are also more optimistic about the improving labor market and the recent round of stimulus checks.

Following months of elevation, the VIX dropped to 16.25 on April 16, the lowest level since February 2020, amid additional fiscal aid and accelerating vaccine rollout.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “greed” at 56.  Junk bond demand and stock prices show extreme greed as investors pursue higher risk strategies and more stocks reach 52-week highs than lows.

As of April 29, 2021, global confirmed cases of COVID-19 were 149,216,984, with 3,144,028 deaths and 968,452,196 administered vaccine doses. Since the rollout of COVID-19 vaccines in late 2020, the number of daily new cases dropped significantly in January and February 2021, especially in countries with effective vaccine campaigns. COVID-19 recovery remains uneven and slower than anticipated. Vaccine distribution to a significant portion of the population remains a challenge for most countries. Only seven countries have administered at least one dose of a vaccine to more than 20% of the population. The US is still the worst-affected country in terms of overall case numbers, followed by India and Brazil.

The Center for Disease Control and Prevention reported 2.7 million average daily vaccinations in the U.S. during the last week of April following a record 3.4 million doses on April 13. The slowdown may be due to the pause on distributions of the Johnson & Johnson vaccine on April 13 following reports of blood clots. By April 29, more than 40% of Americans had received at least one vaccine dose and almost 30% of the population was vaccinated fully. Johns Hopkins University reported a seven-day average of daily new cases of 52,500, and a decline of at least 5% in the number of daily cases in 34 states over the last week of April.

Many countries across Europe started the year with lockdowns and curfews to fight accelerating COVID-19 infections. Over a year after the first COVID-19 cases were reported, 5.5% of the European population have contracted COVID-19 while 7% are fully vaccinated. The U.K. is gradually lifting its lockdown as almost 34 million people have received the first dose of a vaccine and over 13 million are fully vaccinated. On April 29, Hans Kluge, the Europe regional director of the World Health Organization, reported the first significant drop in new COVID-19 cases in the region in two months, but cautioned that infection rates remain high in many areas.

India has been the second worst-affected country in terms of overall cases after the US. Recently, the number of cases and deaths in India started rising to record levels every day. Hospitals and crematoriums are at full capacity with a shortage of oxygen beds and drugs. India reported more than 5.8 million cases in April and record daily deaths of more than 200,000 on April 28. The US announced it would supply India the raw materials needed to produce the AstraZeneca vaccine. The European Union and the UK announced that they will supply oxygen, drugs, ventilators, and medical aid. Saudi Arabia, Pakistan, the United Arab Emirates, Canada, China, and other countries also offered aid.

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Global Market Outlook. Want to know more about the market? Our team of experts share their Monthly Market Update for April 2021.

Monthly Market Update | April 2021

1. COVID-19 cases reach new highs in the US and Europe

2. Joe Biden wins US presidential election

3. US central bank lending programs set to expire

4. Global equities rally on vaccine hopes

5. US dollar and gold weaken while Bitcoin surges

On February 23, Jerome Powell, Chairman of the Federal Reserve (the “Fed”), delivered the semiannual monetary policy report to the Senate Banking Committee and the House Financial Services Committee the following day, confirming the commitment of the Fed to maintain easy monetary policy until the economy recovers from the pandemic. The Fed will maintain interest rates near zero and continue large asset purchases until substantial progress is made towards its employment and inflation goals. Powell asserted that the Fed has the tools to deal with unwanted inflation, but did not comment on market concerns over the recent rise in US Treasury yields.

Powell stated that the economic outlook has improved since economic activity slowed down towards the end of 2020 following the recent decline in COVID-19 cases and deaths and the continued efforts to accelerate vaccine distribution.

In February, the House of Representatives advanced several portions of President Joe Biden’s $1.9 trillion COVID-19 relief bill, in hopes of passing the full aid package by the month end. On February 12, House Democrats advanced the section of the bill that includes $1,400 direct payments and an extension of unemployment programs and payments. Tension continued between Democratic lawmakers who favor massive, extensive plans and Republican lawmakers who prefer less expensive, more targeted proposals. During his speech in January, President Biden proposed two relief packages, implying a more expansive aid package that he will describe during a joint session to Congress scheduled for March.

As government bond yields rise in the US and Europe, European Central Bank (“ECB”) President Christine Lagarde indicated that the ECB will act if rising yields hinder economic recovery from the pandemic. The rising Treasury yields following massive US government spending and vaccine progress undermine the U.S. dollar and strengthening the euro. The ECB kept interest rates at -0.5% and will continue the expanded stimulus program unveiled in late December, buying up to €1.85 trillion of eurozone bonds through March 2022. Despite concerns that a global rise in yields may impede economic recovery, ECB bond purchases slowed in the last week of February, settling at €12 billion of net purchases compared to €17.2 billion in the previous week. Meanwhile, former ECB president Mario Draghi became Italy’s prime minister on February 13.

During his first full month in office, President Biden made efforts to establish his political agenda after former president Donald Trump was acquitted by the Senate of his second impeachment charge. The top priorities for the Biden Administration in February were passing the $1.9 trillion COVID-19 aid package and accelerating vaccine distribution as 50 million vaccine were administered since Biden took office. Meanwhile,, only 10 of the 23 of Biden’s nominees for Cabinet and sub-Cabinet posts have been confirmed, while the rest await Senate confirmation.

February 5: The Senate passed a budget resolution to approve President Biden's stimulus package but rejected the minimum wage package.

February 11: President Biden announces that his administration has secured deals for 200 million more COVID-19 vaccine doses as the US approached 500,000 deaths from COVID-19 (surpassed on February 23).

February 13: Former President Trump was acquitted by the Senate of his impeachment charge for instigating the insurrection at the US Capitol in January.

February 24: President Biden reversed former President Trump’s freeze on several types of visas during the pandemic, including green cards for new immigrants and temporary work visas.

February 27: The House passes President Biden’s $1.9 trillion COVID-19 relief package, including a $15 hourly federal minimum wage that the Senate is unlikely to approve.

February 28: The director of the Center for Disease Control and Prevention (“CDC”) approved Johnson & Johnson’s (“J&J”) one-shot COVID-19 vaccine. The US government approved to begin shipping vaccine doses across the country.

Labor market shows small signs of recovery

The US labor-market resumed recovery in January 2021 following a one-month halt in December, but COVID-19 continued to slow the recovery. Unemployment fell to 6.3% in January from 6.7% in December. Non-farm payroll rose by 49,000 in January after a steep fall in December, the first monthly drop since the first pandemic-related shutdowns in April. In the week ending February 20, initial unemployment benefit claims fell by 111,000 from the previous week to 730,000, the lowest weekly claims since November. Applications for unemployment benefits climbed at the beginning of February, despite other readings, such as retail sales, signaling a rise in economic activity. The latest report of declining weekly claims came as severe winter storms struck parts of the country and some states adjusted for attempted pandemic-related fraud filings. Eurostat reported 8.3% December 2020 unemployment in the euro area, unchanged from November, but above the 7.4% in December 2019. Strict measures following the resurgence of COVID-19 cases and the rapid spread of variants is kept the euro area economic recovery behind those of the US and China.

Vaccine progress and economy re-openings boost growth forecasts

US economic activity is gained momentum after slowing down in Q4 2020 and contracting 3.5% last year. The Congressional Budget Office (the “CBO”) forecasted real US GDP growth of 3.7% in 2021 and a return to pre-pandemic levels by the middle of the year as the US passed a $900 billion aid bill and vaccine production and distribution accelerated, which are both likely to increase business activity. The CBO boosted estimates compared to the summer of 2020 “because the downturn was not as severe as expected” and recovery was faster and stronger than expected.

US retail sales in January marked the largest increase in seven months, increasing 5.3% from the previous month after three consecutive months of decline, as millions received their $600 stimulus checks a month after the $900 billion stimulus package was approved. The increase in spending was across all major categories, even those hardest hit by COVID-19 restrictions such, as restaurants and bars.

The European Commission forecast that the euro area economy will grow by 3.8% in 2021 and 2022. The outlook for Europe continues to be gloomy amid sluggish vaccine rollout and a rapid spread of COVID-19 variants, but economic recovery is expected to gain momentum as containment measures ease and the vaccine rollout progresses in the spring,.

Existing home sales in the US rose 0.6% in January from December and 23.7% year on year (YoY) to a seasonally adjusted annual rate of 6.69 million. Record-low supply and strong demand for housing continued to push prices to near all-time highs.

The Core Consumer Price Index (CPI) increased 1.4% YoY in January and a seasonally adjusted 0.3% from the previous month, after growing 0.2% in December. Concerns over rising inflation following increased spending from another large aid package and vaccine progress were dismissed by Fed Chair Powell, saying that the impact of expected price rises later this year will be short-lived as inflation has been subdued for years. CPI in the euro area increased 0.9% YoY in January, following a 0.3% decline in December, the highest YoY increase since February 2020 ending five months of deflation.

The IHS Markit US Manufacturing Purchasing Managers’ Index (PMI) fell to 58.6 in February from 59.2, staying in line with expectations. The rise in the IHS Markit Euro Area Manufacturing PMI to 57.9 in February from 54.8 in January exceeded forecasts of 54.3, indicating the strongest factory activity growth in three years.

Sovereign bonds yields anticipate higher inflation

The 10-year US Treasury yield rose nearly 0.4% in February, and about 0.5% since the start of 2021. Yields climbed as high as 1.55% on February 25, the highest since February 2020, before closing at about 1.42%. The rise in yields sparked concerns over higher inflation amid an improving economic outlook in the US due to the large aid package, vaccine distribution, and increased consumer spending. 10-year inflation expectations, measured by Treasury Inflation Protected Securities (“TIPS”), jumped as high as 2.21% in February, consistent with the Fed’s target and the highest since 2014. Germany’s 10-year bund yields closed at -0.26% on February 26, its least negative yield since June 2020.

Equity market momentum halted by rising rates

February was a volatile month for US equity markets, ending higher month-on-month following mixed performance in January after the strong rally in November and December. The 2.6% rise in the S&P 500 was mostly during the first two weeks, as fears of rising interest rates reversed some gains in the second half of February. The Nasdaq rose 0.9% despite an even steeper decline during the second half of the month as many technology shares faltered following investors rotating into other sectors.

European equity markets rebounded modestly in February after declining in January for the first time in three months. The STOXX Europe 600 and the UK FTSE100 rose 2.3% and 1.2%, respectively, as vaccine distribution became more widespread, and sentiment improved in Europe. The Hong Kong Hang Seng index, the Chinese SSE Composite Index, and the Japanese Nikkei 225 Index rose 2.5%, 0.7% and 4.7%, respectively. The outperformance of the Nikkei, which hit a 30-year high in mid-February before reversing some of its gains, was driven by strong corporate earnings and news that the Japanese economy grew nearly 13% in Q4 2020 (annualized), marking a second quarter of growth.

Investment grade (IG) spreads tightened to 0.95% while high-yield (HY) spreads tightened to 3.57% from 3.84% since peaking at 11.13% almost a year ago. First-lien spreads to maturity contracted to LIBOR+3.70% from L+3.79% while second-lien spreads widened to L+7.46% from L+7.42%. The yield-to-maturity of first-lien and second-lien debt remain below year end 2019 levels due to near-zero interest rates and unprecedented Fed support for the fixed income market.

Spot WTI and Brent crude oil prices rose to their highest levels since January 2020 amid optimism over economic growth following expectations of another large relief bill and vaccine rollout progress. Spot WTI rose above $60 per barrel for the first time in a year on February 15, rising 18% to $61.50 per barrel at the end of the month. Brent c

Oil prices jumped as a winter storm in Texas boosted demand while impeding production. President Biden’s large relief bill and recent vaccine distribution progress offer hope for oil demand recovery depending on the pandemic situation. Major risks to oil demand recovery continue with the spread of COVID-19 infections, extended lockdowns in some areas, and slower-than-expected vaccine rollout. Bullish demand can create shortages due to reductions in OPEC Plus output, and the suspension of operations and CAPEX in global oil fields. Goldman’s revised Brent forecast of $75 by Q3 2021, compared to its earlier forecast of $65, is the most optimistic among large banks.

US dollar gains strength, gold falls further, and Bitcoin surges

The US dollar continued its slow rise in February after dropping in early January to its weakest level since 2018 as government bond yields rose to their highest in a year. The ICE US Dollar Index increased 0.6% to 90.7 against a basket of currencies on February 26 closing at 90.9 at month end. Gold prices declined 7% from January to $1,729 per ounce at month end as government bond yields rose, which put pressure on stocks and precious metals. However, gold prices should stabilize as the rise in bond yields is unlikely to last. President Biden’s new relief package also strengthened the US dollar, which further weighed on the price of gold. Meanwhile, on February 19, the market value of Bitcoins surpassed $1 trillion as investors seeking inflation hedges and safe havens drove Bitcoin prices 60% higher since the start of the month to an all-time-high of $58,332 on February 21. A week later, Bitcoin ended the month at $46,316. Increased adoption by major institutions drove the cryptocurrency but its recent volatility may hinder widespread use. The Citigroup global perspectives and solutions team wrote in a note that “Bitcoin’s future is thus still uncertain, but developments in the near-term are likely to prove decisive as the currency balances at the tipping point of mainstream acceptance or a speculative implosion.”

Consumer sentiment drops as market fear subdued

The Consumer Sentiment Index of the University of Michigan dropped to 76.8 in February from 79.0 in January, revised upwards from 76.2 earlier in the month as the labor market stalled at the start of the year and weekly claims for unemployment benefits jumped. The decline reflects consumer skepticism over a robust economic recovery and a full restoration of the labor market, despite recent optimism.

The VIX dropped to 19.97 on February 12, closing below 20 for the first time since the onset of the pandemic in February 2020. The recent decline following months of elevation amid additional fiscal aid and continued effort to accelerate vaccine rollout.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) was “neutral” at 48. Safe-haven demand shows “extreme greed” in the weakest period for stocks relative to bonds in the past two years, indicating that investors favor safer bonds over risky stocks.

As of February 24, 2021, global COVID-19 confirmed cases and deaths reached 111,762,965 and 2,479,678, respectively. Almost a year after the first COVID-19 cases were confirmed in countries across the globe, the pandemic shows little sign of easing. As countries struggle with the limited supply of vaccines, new variants of the coronavirus have been detected. The highly contagious UK variant detected in December has been detected in China and the US, while another variant identified in South Africa and Brazil has also been detected in the US. The US remains the worst-affected country in case numbers, followed by India and Brazil.

On February 23, 2021, the US death toll from COVID-19 surpassed 500,000, grim reminder that the pandemic is far from over. The number of new cases and hospitalizations have been declining but remains above previous periods. Moreover, new concerns have arisen that the new variants from the UK, Brazil, and South Africa may be more contagious, more deadly, and vaccine-resistant. Cases and deaths may spiral unless the highly contagious UK variant spreading rapidly in the US is contained and vaccinations accelerated. Meanwhile, President Biden announced an increase in weekly vaccine from 8.6 million doses to 14.5 million. So far, around 82 million vaccines have been delivered and about 65 million have been administered. An estimated 68% of the US population should be vaccinated by the end of July. After the approval of the J&J one-shot vaccine on February 28, 4 million doses are being prepared for shipment and 20 million doses should be provided by the end of March.

Many countries in Europe started the year with lockdowns and curfews to fight accelerating COVID-19 infections. The highly contagious variants are spreading rapidly while the vaccine rollout remains sluggish, which may force governments to extend restrictions to contain the virus. As of February 16, only 4.8% of Europeans have been vaccinated. France, the second worst-affected country in Europe after the UK, remains under a nation-wide 6PM to 6AM curfew. Bars, restaurants, and cinemas remain closed. Germany’s nationwide lockdown has been extended to March 7. Vaccine rollouts in the offer hope of easing restrictions soon as over a quarter of the population has been vaccinated.

The remainder of President Biden’s first 100 Days

Global Market Outlook. Want to know about the market? Our team of experts shares their Monthly Market Updates for February 2021.

Monthly Market Update | February 2021

1. Vaccine rollout is slow amid surging COVID-19 cases

3. US and European central banks hold rates steady

5. Equities shaken by retail trading frenzy

6. Tech continues to outperform, banks mixed

Following its two-day December meeting, the Federal Reserve (the “Fed”) maintained interest rates near zero and assured that it will continue to buy at least $120 billion in Treasury and mortgage-backed securities monthly until there is evidence of “substantial further progress” towards its inflation and employment goals. The Fed plans to give sufficient notice before reducing purchases to avoid a repeat of the “taper tantrum” panic of 2013, when US Treasury yields spiked following news that the Fed might taper asset purchases. At a Fed policy meeting on January 27, Fed Chairman Jerome Powell said that market concern over eventual tapering by the Fed is “premature.” Unemployment projections were reduced further despite the recent spikes in COVID-19 cases, as the economic recovery has been better than expected so far, albeit at a slowing pace. However, with sluggish vaccine rollouts, Mr. Powell said that the “the pandemic still provides considerable downside risks to the economy.”

On January 14, President Joe Biden announced his $1.9 trillion COVID-19 relief plan to help the US through the pandemic. President Biden’s plan calls for a $1,400 stimulus payment per person, which would bring the total amount of direct payments in the past few months to $2,000, as promised when the first stimulus bill was approved by former President Donald Trump in late December. The package would also include a $400 weekly unemployment insurance supplement through September. Most of the fiscal injections would be used to aid households, vaccine distribution, and state and local governments.

After the January 21 policy meeting of the European Central Bank (the “ECB”), interest rates were unchanged at -0.5% and the expanded stimulus program unveiled in late December to buy up to €1.85 trillion of eurozone bonds through March 2022 continued as the euro area struggle with lockdowns after the second wave of COVID-19. For the past five months, inflation in the euro area has been at record lows, well below the 2% target, especially as a stronger euro made imports cheaper. At a press conference in January, ECB President, Christine Lagarde, said, “The pandemic continues to pose serious risks to public health and to the euro area.” The economic outlook of the ECB became gloomier since the December policy meeting amid lockdowns, slow vaccine distribution and persistently high COVID-19 cases.

On January 20, Joe Biden and Kamala Harris were sworn in as President and Vice President of the United States just two weeks after the insurrection at the US Capitol when hundreds of Donald Trump supporters stormed the Capitol to stop a joint session of Congress from formalizing President Biden’s win. Since his first day in office, President Biden has signed several executive actions on COVID-19, immigration, climate change, etc.

Reverend Raphael Warnock won the Georgia US Senate runoff, winning Democrats control of the White House and Congress.

Hundreds of Donald Trump supporters and far-right groups stormed the Capitol building to stop a joint session of Congress from certifying the Electoral College vote.

The House of Representatives voted to impeach President Donald Trump for inciting the attack against the US Capitol. Donald Trump became the first US President to be impeached twice.

President Joe Biden and Vice President Kamala Harris are inaugurated at the US Capitol. Former President Donald Trump left Washington earlier that day, missing President Biden’s inauguration. On his first day in office, President Biden signed executive orders to rejoin the Paris Agreement, require mask-wearing on federal property, coordinate a government-wide COVID-19 response, and others focused on immigration, student loans, and racial injustice.

Janet Yellen, former Chair of the Fed, was confirmed by the Senate as the first woman Secretary of the US Treasury Department.

Labor market signals to a slowing economic recovery

The US labor-market recovery stalled in December after seven consecutive months of job growth with rising state-imposed restrictions following a resurgence of COVID-19 cases. Unemployment was unchanged at 6.7%. Non-farm payroll declined by 140,000 in December for the first time since April. Weekly initial unemployment claims had been declining since their peak in March and April at the start of the pandemic but began climbing again in October as the pandemic accelerated across the US. In the week ending January 9, claims jumped more than 100,000 to 926,000, the largest weekly increase since March, as many pandemic aid programs ended in 2020. In the week ending January 23, claims fell by 67,000 to 847,000.

Eurozone unemployment fell to 8.3% in November from 8.4% in October. However, economic recovery was disrupted by the resumption of lockdowns after the resurgence of COVID-19 cases.

Global economic activity slows amid second wave

The US economic recovery lost momentum in Q4 as more states reimposed restrictions following the surge of COVID-19 cases to record highs. The US economy contracted 3.5% in 2020 for the first time since the financial crisis in the largest contraction since the end of World War II in 1946. Q4 2020 GDP dropped 2.5% year on year (YoY) but grew an annualized 4% quarter on quarter (Dow Jones estimate was 4.3%), driven by consumer spending, exports, residential investment and nonresidential fixed investments, despite declines in government spending and investments.

US retail sales growth fell for a third consecutive month in December to 0.7%. The recovery slowed in Q4 2020 largely due to the spreading pandemic and the delayed approval of fiscal stimulus. The new aid package which provides direct aid to households and businesses and funding for vaccine production and distribution should boost economic growth in the second half of 2021.

Annualized Eurozone GDP declined 2.8% in Q4 2020, far behind the US and China. The eurozone economy contracted 6.8% in 2020, compared to a 3.5% decline in the US and a 2.3% rise in China. The outlook for Europe continues to be gloomy with the sluggish vaccine rollout, surging COVID-19 cases, new COVID-19 variants, and extended lockdowns.

Existing home sales in the US rose 0.7% in December to a seasonally adjusted annual rate of 6.76 million after falling 2.5% in November.

The seasonally adjusted Core Consumer Price Index (CPI) increased 0.4% in December after rising 0.2% in November. Gasoline prices comprised more than 60% of the CPI increase. Inflation should remain subdued as short-term demand falls following the resumption of COVID-19 restrictions in the US. Euro area consumer prices fell 0.3% for a fifth consecutive month YoY in December and core CPI was unchanged at a record low 0.2%.

The IHS Markit US Manufacturing Purchasing Managers’ Index (PMI) jumped to 59.1 in January 2021 from 58.3 in December, exceeding market forecasts of 56.5. The IHS Markit Euro Area Manufacturing PMI fell slightly to 54.7 in January 2021 from 55.2 in December, moderately exceeding market forecasts of 54.5.

The 10-year US Treasury yield rose 0.25% since the start of 2021, peaking to 1.19% on January 12, the highest since March 2020, before closing at about 1.11%, after Democrats took control of the Senate following the surprise win in the Georgia elections. Markets were previously assumed a divided Congress would hamper policy changes and yields dropped as COVID-19 cases continued to rise without agreement on the stimulus. 10-year inflation expectations, measured by Treasury Inflation Protected Securities (“TIPS”), jumped to 2.13%, consistent with the Fed target and the highest since October 2018. This put significant pressure on real yields which reached record low negative territory to −1.06% at month end.

Germany’s 10-year bund yields closed the month at -0.52% , its least negative territory since November, after positive vaccine news.

Equities mixed; shaken by unusual retail activity

US equity markets stalled in January following a strong rally in November and December driven by positive vaccine news and more political certainty in the US. The S&P 500 declined 1.1%, mostly during the last week of the month, as the speculative frenzy in retail-driven stocks such as GameStop and AMC stoked fears about market instability and speculation. Nasdaq rose 1.4%, despite a relatively large decline during the last week of the month, suggesting that fears of trading mania largely offset a strong earnings season. The vaccine supply bottleneck and the weaker-than-expected effectiveness of the Johnson & Johnson vaccine also dampened the vaccine-fueled optimism since November 2020.

European equity markets had their first monthly decline in three months. The STOXX Europe 600 and the UK FTSE100 declined 1.0% and 2.3%, respectively, reversing part of a vaccine-propelled rally at the end of 2020. In Asia, the Hong Kong Hang Seng index, the Chinese SSE Composite Index and the Japanese Nikkei 225 Index rose 4.2%, 0.3% and 0.8%, respectively, primarily due to China’s robust economic growth (the only major economy that grew in 2020) and increasing flows into growing Asian markets.

In January 2021, markets were shaken spectacularly by the power of digitization and the democratization of information. WallStreetBets, a group on Reddit, led massive coordinated short squeezes on stocks like GameStop and AMC, which had been sold short by hedge funds due to declining business models that were worsened by the pandemic. At its January 27 peak, GameStop stock had surged 1,420% since the beginning of the year, causing short sellers to incur billion-dollar losses and several brokerages to impose trading restrictions. Coordinated retail investing may change hedge fund models and call for government intervention.

Investment grade (IG) spreads remained at 1.03% while high-yield (HY) spreads tightened slightly to 3.84%. First-lien spreads to maturity contracted to LIBOR + 3.79% from LIBOR + 4.02% while second-lien spreads contracted to LIBOR + 7.42% from LIBOR + 7.91%. The yield-to-maturity of first-lien and second-lien debt remains below year end 2019 levels due to near-zero interest rates and unprecedented Fed support for the fixed income market.

Oil rallies on vaccine hopes, but remains in bear market

Spot WTI and Brent crude oil prices have been stable since the start of January, rising 7.1% and 6.0%, respectively, to $51.98 and $54.91 per barrel at month end. Although the stimulus package and vaccine distribution should support oil demand, the recovery depends on how the pandemic situation evolves. Rising COVID-19 infections, extended lockdowns, and slow vaccine rollout present major risks to oil demand recovery.

US dollar weakens, gold falls further, and Bitcoin surges

The US dollar continued to decline into 2021 to its weakest since 2018, with the ICE US Dollar Index down 13.5% since its March peak to 89.4 on January 4 against a basket of currencies, before rising again to 90.4 at month end. Gold prices dropped 2% in January to $1,858 per ounce, despite edging higher since early January, driven partly by a strengthening US dollar, rising bond yields, and President Biden’s new stimulus package. Meanwhile, the price of Bitcoin increased 40% to a record $41,940 earlier this month, as investors sought inflation hedges and safe havens. A week after hitting a record high, Bitcoin fell over 10% in one day to $34,200. Despite indications of wider institutional acceptance of Bitcoin, its recent volatility suggests that it may not be there yet.

Technology delivers strong earnings; Tesla mixed

Apple reported a 21% YoY increase in fiscal Q1 2021 (ending 26 December 2020) revenues to a record $111.4 billion, 8% above estimates, while earnings per share (EPS) of $1.68 were 19% above estimates. Besides 5G iPhone sales, there was double-digit sales growth for every product. CEO Tim Cook said that results could have been even better were it not for the COVID-19 pandemic and subsequent business shutdowns.

Amazon also reported record Q4 2020 revenues of $125.6 billion. Q4 2020 EPS of $14.09 beat estimates by 95%. Stellar results were driven by a surge in holiday spending, continued pandemic-related ecommerce demand, and Prime Day. Amazon announced that Amazon Web Services CEO, Andy Jassy, will replace Jeff Bezos as CEO in Q3 of 2021 and Jeff Bezos will become executive chairman.

Facebook beat estimates but warned that the changes in the Apple iOS 14 privacy settings (asking users to opt in for data collection rather than opt out) would hinder its ad targeting and a worsening pandemic could impact its business later in Q1. Sales grew 33% YoY to $28.1 billion, beating estimates of $26.44 billion, while EPS of $3.88 were above the consensus estimates of $3.22. CEO Mark Zuckerberg announced that Facebook is working to reduce political content in its News Feed in response to the insurrection at the US Capitol on January 6.

Alphabet reported record Q4 2020 revenue of $56.9 billion, 7% above the consensus estimates, and EPS of $22.30, well above estimates of $15.90, driven by a 22% YoY increase in advertising revenues (Search and YouTube). Google faces threats from regulators in the US and abroad as it faced three government antitrust lawsuits in the US in Q4 of 2020.

Microsoft revenues of $43.1 billion and EPS of $2.03 were above expectations by 7% and 24%, respectively. Cloud business revenue, including Azure and GitHub, grew 23% YoY. Productivity and business processes, which include Office products and LinkedIn, grew 13%. Following the release of Xbox Series X and Series S in November, personal computing revenue, which includes search ads, Surface and Xbox, grew 14% YoY.

Tesla narrowly beat Q4 2020 revenue estimates but missed earnings estimates. Q4 EPS of $0.80 was 22% below consensus estimates of $1.03 and revenue of $10.74 billion was 3% above estimates, driven largely by robust growth in vehicle deliveries and regulatory credit revenue. With two new factories opening in Texas and Germany and its expansion in China, the average annual growth in vehicle deliveries is expected to be 50%.

Of the traditional large commercial banks, JP Morgan and Citibank beat consensus earnings estimates by 45% and 55%, respectively, as both banks released reserves to cover potential loan losses caused by the pandemic after positive news regarding stimulus and vaccines. JP Morgan revenues were $30.2 billion compared to a $28.7 billion forecast, while Citibank revenue of $16.5 billion just fell short of the expected $16.7 billion.

The EPS of Morgan Stanley and Goldman Sachs exceeded estimates by 51% and 62%, respectively, as their trading and market-making operations remained resilient amidst the pandemic. Goldman revenues were $11.7 billion compared to an expected $9.9 billion, driven by a 40% YoY surge in equities trading revenues. Morgan Stanley revenues of $13.6 billion beat estimates of $11.5 billion, outperforming across all divisions, including wealth management, investment management, equities trading, and fixed income trading.

Visa, Mastercard and American Express performed better than expected, a positive sign of economic recovery. Visa revenues were $5.7 billion compared to $5.5 billion expected, and EPS of $1.42 was above the expected $1.28. Mastercard revenues were $4.1 billion in revenues against $4.0 billion expected, and the EPS of $1.78 was well above the $1.52 Wall Street estimates. American Express revenues were $9.4 billion compared to analyst expectations of $9.3 billion, while the EPS of $1.76 was above the expected $1.31. However, sentiment was reserved, describing 2021 as a “transition year,” dismissing any upbeat guidance on the prospects of a swift recovery with the vaccine rollout.

Large energy companies such as Exxon and Chevron reported Q4 2020 losses as COVID-19 continued to take a heavy toll on energy markets. Both companies maintained dividend payouts, announcing that their large quarterly losses were mitigated by aggressive cost cuts and some rebound in demand. The two oil giants have been in merger discussions over the past 12 months. President Biden’s push to suspend oil and gas leasing on federal lands is likely to put pressure on US energy companies.

Caterpillar, often considered a barometer for an economic cycle, also beat expectations with revenues slightly better than forecasts at $11.2 billion, and EPS of $2.12 in EPS well above average analyst estimates of $1.50 and the highest estimate of $1.77. Caterpillar expects a strong jump in global construction activity.

The Consumer Sentiment Index of the University of Michigan dropped to 79.0 in early January from 80.7 in December following the insurrection at the US Capitol and the surge in COVID-19 cases and deaths.

The VIX jumped 62% to 37 on January 27 from 23 on January 26, its highest since November and the biggest rise in two years, as retail traders bought into heavily shorted stocks like GameStop, AMC and BlackBerry inflicting huge losses upon short-selling hedge funds. Other possible drivers of the VIX spike may relate to record mega-cap tech earnings of Apple, Tesla, and Facebook.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “fear” at 34. Safe-haven demand showed extreme fear in one of the weakest periods for risky stocks relative to safer bonds in the past two years.

As of January 26, 2021, the number of global COVID-19 cases has surpassed 100 million. Almost a year after the first COVID-19 cases were confirmed, cases continue to rise across the world. On January 15, the global COVID-19 death toll surpassed 2 million. New coronavirus variants have been detected in several countries. The highly contagious UK variant detected in December has been detected in China and the US. Another variant identified in South Africa and Brazil has been detected in the US. The US is still the worst-affected country in terms of case numbers, followed by India and then Brazil.

January was the deadliest month for the pandemic in the US with almost 80,000 deaths in January, bringing the cumulative death toll to 400,000. On January 25, President Biden barred the entry of non-US citizens from South Africa and extended travel restrictions from Europe, Brazil, and the UK as new strains were being identified. On the same day, California lifted its statewide stay-at-home order and curfew, despite having the highest number of COVID-19 cases. The number of new cases and deaths have been declining since their January 12 records, but remain elevated. The rollout of COVID-19 vaccines in the US has been slow. As of January 8, more than 22 million vaccines had been distributed in the US and 6.7 million had received their vaccines at that point.

Countries across Europe started the year with lockdowns and curfews to fight rising COVID-19 infections. France, the second worst-affected country in Europe after the UK, tightened restrictions further with a 6PM-to-6AM nation-wide curfew on January 16. Bars, restaurants, and cinemas remain closed. Germany extended the nationwide lockdown until February 14. The UK reported record 1,325 COVID-19 deaths on January 8. Vaccine supplies in Europe were critically low as deliveries of AstraZeneca and Pfizer vaccines were delayed.

Global Market Outlook. Want to know about the market? Our team of experts share their Monthly Market Update for January 2021.

Monthly Market Update | January 2021

COVID-19 cases reach new highs in the US and Europe

US central bank lending programs set to expire

US dollar and gold weaken while Bitcoin surges

Fed lending programs set to expire as COVID-19 cases surge

In a statement released on November 5, the Federal Reserve (the “Fed”) expressed its continued commitment to support the US economy through the pandemic. Economic activity and employment continue to recover but remain well below pre-pandemic levels. As expected, the Fed voted to maintain interest rates in the range 0.00%-0.25% and aims to achieve inflation moderately above 2.0%. Fed Chair Jerome Powell said that the Fed is most focused on the “near-term risk” of the continued spread of COVID-19. As the central bank emphasized the need for more fiscal and monetary support throughout the month, the US Treasury declined to extend several Fed lending programs past December, which Fed officials said will impede the ability of the Fed to support the economy. In a letter to Chairman Powell released on November 19, Treasury Secretary Steven Mnuchin said he will allow some of the emergency lending programs of the Fed to expire on December 31, stating that these programs “have clearly achieved their objectives.” The programs expiring in December include facilities that supported corporate credit and provided loans to small and midsize businesses throughout the pandemic. Mnuchin also requested the Fed to return $455 billion in unused funds to the Treasury.

With record COVID-19 cases and emergency aid programs set to expire in December, a decision on another stimulus package is anticipated. The Democratic and Republican parties remain divided over the size of the next relief package. House Speaker Nancy Pelosi and Treasury Secretary Mnuchin have been discussing a $2 trillion bill, but Senate Republicans recently drafted a $650 billion package. President-elect Joe Biden could affect decisions concerning fiscal and monetary policy through his personnel appointments. On November 23, President-elect Biden nominated former Federal Reserve Chair Janet Yellen as the next Treasury secretary. Yellen, along with the Biden administration, may revive the expiring lending programs.

Last month, the European Central Bank (the “ECB”) hinted at another stimulus package in December. On November 11, ECB President Christine Lagarde suggested that the central bank may cut borrowing costs further for banks and expand asset purchases in response to COVID-19. The ECB will announce its new stimulus package in December.

Joe Biden Elected President of the United States

Joe Biden was declared the 46th President of the United States. President Trump has not conceded the race, and his campaign has filed numerous lawsuits, including ones contesting the election results of six battleground states. Meanwhile, various cabinet appointments to the Biden administration have been reported, several states have certified their election results, and President Trump has stated that he would leave the White House if Biden is declared the winner of the Electoral College.

In the Congressional elections, Democrats maintained control of the House of Representatives but lost several seats. Republicans appear to have maintained control of the Senate subject to the run-off vote in Georgia on January 5.

The 59th US Presidential Election was held, with incumbent President Donald Trump as the Republican candidate and former Vice President Joe Biden as the Democratic candidate. With record voter turnout and record mail-in ballots, which represented most of the votes due to COVID-19, Joe Biden surpassed President Barack Obama’s 2008 record for the highest number of votes received by a presidential candidate.

Major news networks announced that Biden won in Pennsylvania, giving him 279 electoral votes, well above the 270 votes needed to win the Electoral College. Senator Kamala Harris will serve as Biden’s Vice President.

Georgia announced a hand recount of its presidential votes, which certified Biden as the winner.

Emily Murphy, head of the General Services Administration, declared Joe Biden the winner of the election, starting the presidential transition process. Biden appointed former Deputy Secretary of State Antony Blinken as Secretary of State.

A federal appeals court denied the appeal of the Trump campaign over the election results in Pennsylvania.

Arizona and Wisconsin certified that Joe Biden won by a narrow margin, marking the last of the contested battleground states to certify election results. Biden appointed former Fed Chair Janet Yellen as Treasury Secretary.

Unemployment continues to fall but claims start rising

The US labor market continued to recover in October as unemployment dropped for a sixth consecutive month to 6.9% from 7.9% in September. Non-farm payroll rose by 638,000 in October with significant job gains in leisure and hospitality as COVID-19 restrictions eased, with a decline in government jobs. In the week ending November 21, weekly initial unemployment benefit claims rose by 30,000 from the previous week to 778,000, marking a second week of increase as restrictions were reinstated on business activity following a surge in COVID-19 daily cases. In Europe, strict measures following the resurgence of COVID-19 cases disrupted the economic recovery after the first wave of the virus. The European Commission forecasts unemployment in the euro area to be 8.3% by year end, the same figure reported in September, and 9.4% by the end of 2021.

The US economy continued to recover in November after annualized Q3 GDP grew at an unrevised 33.1% quarter on quarter (QoQ), the fastest pace in more than a year and a half, following a 31.7% annualized QoQ drop in Q2, the largest since 1947. Despite the positive vaccine news, annualized Q4 growth estimates are below 5% as COVID-19 cases soar. US retail sales rose 0.3% in October below the 1.6% increase in September and the estimates of 0.5%, marking the slowest monthly rise in retail sales since May and a slowing economic recovery.

Annualized Q3 Eurozone GDP surged a record 61.3% QoQ, well above economists’ forecasts of 44.3%, with double-digit growth in major economies such as France, Italy and Spain. However, following the reinstatement of restrictions with the resurgence of COVID-19, the European Commission projects that the eurozone economy will contract 7.8% in 2020 and grow 4.2% in 2021

Existing home sales in the US rose 4.3% in October to a seasonally adjusted annual rate of 6.85 million, the highest in 14 years, while the median existing home price increased 15.5% YoY to a record $313,000, supported by record-low interest rates.

The Core Consumer Price Index (CPI) was unchanged in October, after four consecutive months of gains. Economists expect inflation to remain subdued as short-term demand falls following the resurgence of COVID-19 cases in the US. Core eurozone CPI increased for a third consecutive month by a record low 0.2%.

The IHS Markit US Manufacturing Purchasing Managers’ Index (“PMI”) rose to 56.7 in November from 53.4 in October, marking the strongest expansion in factory activity since September 2014, beating consensus estimates of 53.0.

The IHS Markit Euro Area Manufacturing PMI fell to 53.8 in November from 54.8 in October.

The 10-year US Treasury yield was largely unchanged in November, closing at about 0.84% after reaching about 0.98% earlier this month, its highest level since March. Investors briefly moved away from safer assets amid positive news on the COVID-19 vaccine and more political certainty after the US elections. 10-year inflation expectations, measured by Treasury Inflation Protected Securities (“TIPS”), hovered at 1.77%, below the Fed target but above the 1.06% in May (March and April figures distorted due to dislocation). This put significant pressure on real yields which have been at their lowest negative territory on record.

Germany’s 10-year bund yields rose to -0.57% this month from a three-week low of -0.59% and -0.63% in October, but below the two-month high of -0.46% in early November after the positive COVID-19 vaccine news.

US equity markets rallied in November following three consecutive monthly declines, as major indices were driven by investor optimism of the distribution of COVID-19 vaccines in the near-future. The S&P 500 rose 10.8%, mostly in the first half of the month, as uncertainty around the US presidential election subsided and Pfizer and Moderna reported favorable early results of their respective vaccines, while the tech-heavy Nasdaq rose 11.8%, reaping the benefits of the strong earnings season suggested in October.

Most major global equity indices had similar rallies amid optimism for global coordination in combatting the virus under the Joe Biden administration. European markets rebounded from last month’s lockdown-induced declines, with the STOXX Europe 600 and the UK FTSE100 rising 13.7% and 12.4%, respectively. In Asia, the Hong Kong Hang Seng index, the Chinese SSE Composite Index rose, and the Japanese Nikkei 225 Index rose 9.3%, 5.2% and 15.0%, respectively.

The planned $34.4 billion IPO of Ant Group, the Alibaba-affiliated fintech company, was halted by the Chinese government at the beginning of the month, citing the need to adhere to financial regulations just days after founder and controlling shareholder Jack Ma criticized Chinese regulatory policies. The IPO, which would have been the largest in history, topping the $29.0 billion raised by Saudi Aramco in late 2019, seems unlikely before 2022.

Investment grade (IG) spreads tightened to 1.12% from 1.34% this month while high-yield (HY) spreads continued to tighten to 4.33% from 5.32% after peaking at 10.87% in March. First lien spreads to maturity contracted to LIBOR + 4.32% from LIBOR + 4.66% while second lien spreads contracted to LIBOR + 8.16% from LIBOR + 8.72%. The yield-to-maturity of first lien and second lien debt remain below year end 2019 levels due to near-zero interest rates and unprecedented Fed support for the fixed income market.

Spot WTI and Brent crude oil prices rose 26.0% and 25.6%, respectively, to $45.08 and $47.64 per barrel at the end of November, the highest since March, as vaccine results improved demand expectations. The rally followed the largest monthly drop since March in October, when Europe and the US imposed new lockdown measures to combat spikes in COVID-19 cases. The month-to-month change in sentiment suggests widespread uncertainty about short-term demand for oil. OPEC officials warned on November 30 during discussions of production cuts that “immense challenges” from the pandemic are likely to continue into 2021.

US dollar weakens, gold falls further, and Bitcoin skyrockets

The US dollar dropped to its weakest level since 2018 in late November, with the ICE US Dollar Index down 11.6% since its March peak to 91.81 at month-end against a basket of currencies. Gold prices dropped 5.3% to $1,780 per ounce for the month, driven partly by promising vaccine results and a subsequent lull in demand for risk assets. Meanwhile, the price of Bitcoin rose over 40.0% to all-time highs. A weakened US dollar, bloated central bank balance sheets, and the collapse of real bond yields have led to increased demand for assets that are insulated from government manipulation. Bitcoin bulls maintain that the cryptocurrency is one such asset due to its decentralization and digitally limited quantity, which imply a natural hedge against inflation.

Consumer sentiment drops as market sentiment improves

The Consumer Sentiment Index of the University of Michigan dropped to 76.9 in November from 81.8 in October, following the US presidential election amid a resurgence in COVID-19 cases.

Global Market Outlook. Want to know more about the market? Our team of experts shares their Monthly Market Update for November 2020.

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