Market update – December 2020

As the end of the Brexit transition period on 31 December approaches, it is still not clear whether the UK and EU will be able to agree a comprehensive trade deal. Although the briefings over the past few days have been more positive, both sides still state that major gaps exist.

What is clear is that businesses face major disruption in the New Year, irrespective of whether a trade deal is agreed. A deal would eliminate tariffs and quotas with the EU, but the UK has maintained temporary membership of the EU’s Single Market and Customs Union during the transition period, so has not yet had to deal with any of the additional checks and paperwork required of non-EU countries. With the trade negotiations ongoing, businesses and transport companies will not know exactly what is required until the very last minute, and there has been little time to test the new processes and IT systems.

The UK economy is already dealing with the huge disruption of the Covid-19 pandemic, with UK GDP expected to contract by 11.3% this year. Government borrowing is forecast to reach its highest ever peacetime level, and the rate of unemployment is expected to reach 7.5%, with 2.6 million people out of work. Although growth is predicted to recover to 5.5% in 2021, rising to 6.6% the following year, UK economic output is not forecast to return to pre-crisis levels until the end of 2022.

Buoyed by positive vaccine news, the FTSE100 Index gained 12.4% during November, its best month since January 1989. However, the recovery of the UK stock market has lagged well behind other global indices and the FTSE100 is still down by around 14% over 2020 as a whole. Concerns remain that new lockdown restrictions could still cause significant economic damage before vaccines can be effectively rolled out.

In the US, the Dow Jones Industrial Average Index climbed by 11.8% over November and rose above 30,000 points for the first time during the month. The S&P 500 Index rose by 10.8% and the Nasdaq Index increased by 11.8%. All three major US indices are well ahead year to date.

After several days of wrangling and recounts, Joe Biden emerged as the victor in the US Presidential Election and will become the 46th US President on 20 January 2021. Although the Democratic Party managed to hold on to the House of Representatives, it remains unclear which party will control the Senate until runoff elections take place in Georgia in January.

China’s economy has continued to rebound. Having contracted at an annualised rate of 6.8% during the first three months of 2020, it grew by 3.2% in the second quarter and, during October, reported third-quarter expansion of 4.9%. It is unclear how Joe Biden’s presidency will impact US-China relations, although a more conventional US foreign policy may be considered beneficial.

Closer to home, more than 10,000 redundancies have been proposed by Northern Ireland firms since March, the highest number ever recorded. The majority of proposed redundancies are in manufacturing and retail. The latest figures from NICEI (Northern Ireland Composite Economic Index) for the second quarter of 2020 did show that NI economic output decreased at a less dramatic level than the UK as a whole, with losses in the private sector cushioned somewhat by the public sector.

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The value of your investment can go down as well as up and you may not get back as much as you originally invested.

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