Market Update

Traditionally, this time of year is celebrated as "the most wonderful time of the year" when people wind down for the holidays. However, 2020 has defied all norms, making it a year like no other. The past week was exceptionally busy, especially for regulators and policymakers who worked tirelessly to finalize agreements before the year's end. Despite their efforts, global equity markets ended the week on a downward note due to the absence of breakthroughs on a new US fiscal stimulus package and post-Brexit trade relations.
While no major breakthroughs occurred, there was notable progress. US Treasury Secretary Steve Mnuchin presented a new $916 billion stimulus proposal after a month-long stalemate. Although met with skepticism, a more favorable $908 billion bipartisan proposal gained traction and is expected to be finalized and presented in the coming days.
With rising COVID-19 cases in the US and prolonged stimulus discussions, equity markets understandably experienced volatility. However, there was a glimmer of hope as an advisory panel approved the Pfizer vaccine, increasing the likelihood of US regulators granting emergency use authorization in the near future.
In the UK, the Pfizer vaccine rollout commenced, although it had limited impact on equity markets. Instead, it was Brexit trade talks that caused fluctuations in Sterling and UK equities. Following a meeting between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, which failed to yield a breakthrough, both leaders warned of a potential no-deal Brexit. Despite their ultimatum and a new weekend deadline, trade talks are expected to persist, with heightened rhetoric necessary to maintain momentum before the year-end cutoff.
In Europe, the Central Bank expanded its economic support by extending and broadening its bond buying program. However, ECB President Christine Lagarde noted that these facilities might not need to be fully utilized if favorable financing conditions persist. Lagarde emphasized the importance of fiscal policy in Europe's economic strategy. Her measured comments, coupled with news of EU leaders reaching a €1.8 trillion budget and post-pandemic recovery package agreement, boosted the Euro.
Looking ahead, government policies will continue to dominate headlines, with scheduled monetary policy updates from the US, the UK, and Japan. Additionally, more vaccine approvals are expected, offering hope for the future. However, it's important to note that vaccinating the global population will take time, leading to continued elevated equity market volatility in the short term.
While many equity markets have made remarkable recoveries this year, several companies in sectors with significantly reduced demand still face challenges. However, the Pfizer vaccine marks just the beginning, instilling confidence that the coronavirus is a temporary issue. As demand rebounds, the outlook for 2021 remains positive.