Yesterday evening, prospects of a Brexit trade deal increased as talks were extended beyond a Sunday deadline, with both sides agreeing to “go the extra mile” to overcome substantial differences in position. The main sticking point is the need to satisfy European Union demands for fair business competition, according to the FT. Last week, the FTSE 100 was flat as investors waited for movement in negotiations. Although a fall in the value of sterling helped to sustain the index, whose constituent companies generate 70% of their earnings overseas. The more domestically focused FTSE 250 fell back by 2.8%. The extension to talks has however boosted Sterling which is trading up 1.3% and 1% against the dollar and euro respectively.
The other big piece of news over the weekend was AstraZeneca’s planned acquisition of US biotechnology firm Alexion for $39bn. AstraZeneca is a British and Swedish drugmaker, and Alexion adds more immunology capabilities to its stable. Alexion has been a target of activist hedge fund Elliot Management in 2020, which urged the company to sell itself due to what it argued were mistakes made by management.
Real estate, financial sectors fall back as recovery stalls
In the US last week, the S&P 500’s real estate, financials and consumer discretionary sectors fell significantly, as economic data showed that the country’s economic recovery appears to be stalling. All three major US stock indices posted losses last week, ranging from -0.6% for the Dow Jones Industrial Average to -1% for the S&P. In a note on Friday, analysts at financial advice firm Edward Jones noted that what matters more for long-term investors at present is the prospect of the economy entering a “new multiyear expansionary cycle that extends the bull market into the future.” The analysts noted several reasons for optimism, including corporate profit forecasts, but highlighted multiple signs of market complacency. Those include company valuations expanding over the past two months, and a substantial gap between the current economic reality and asset prices.
In other news last week, Disney’s stock jumped by almost 14% on Friday, as investors responded positively to a number of announcements related to the firm’s Disney+ streaming service. The firm said it will release more than 100 movies and TV shows in the next few years, with 80% of those going directly to Disney+.
S&P 500: -0.1% Friday, +13.4% YTD (-1% last week)
Dow Jones Industrial Average: +0.2% Friday, +5.3% YTD (-0.6% last week)
Nasdaq Composite: -0.2% Friday, +38% YTD (-0.7% last week)
Tobacco stocks lead FTSE 100 in flat week
The FTSE 100 had a muted last week, losing 0.1%, while the FTSE 250 fell back by 2.8%. In the FTSE 100, tobacco stocks Imperial Brands and British American Tobacco were among the best performers, closing the week 7.5% and 4.9% higher respectively. AstraZeneca also enjoyed a positive week, adding 2.5%, taking its year-to-date gain to 13.1%. The firm has not received a major share price boost from its Covid-19 vaccine, which the US government has already agreed to order hundreds of millions of doses of. AstraZeneca’s vaccine will be priced at less than $4 a dose, a fraction of what Moderna and Pfizer will charge, and the firm has said it will provide vaccines at-cost in perpetuity to developing nations. Homebuilders Persimmon and Berkeley Group brought up the bottom of the FTSE 100 last week, with both posting double-digit losses.
FTSE 100: -0.8% Friday, -13.2% YTD (-0.1% last week)
FTSE 250: -0.7% Friday, -10.3% YTD (-2.8% last week)
What to watch
There is little in the way of corporate earnings releases or economic data being reported on Monday, but the last full trading week before Christmas is set to be a packed one. In the US, negotiations between Democrat and Republican lawmakers on a stimulus package will be in focus, as will the Federal Reserve’s final meeting of the year, plus a host of economic data. At the end of the week, Tesla will join the S&P 500 in one fell swoop, which will be an event to watch as passive fund managers scramble to add Tesla to their portfolios. In Europe, continued talks between UK and EU officials regarding a post-Brexit trade deal will be the main point of focus.
What would no-deal do to stock markets?
A no-deal Brexit has become a much more distinct possibility in recent days, and negotiations are going down to the wire. There is still a huge amount of uncertainty, which means there is likely to be a market reaction whatever the outcome of negotiations. On Friday, Morgan Stanley said that it anticipates the FTSE 250 index will drop by 6% to 10% if the UK fails to agree a trade deal with the EU by the time the current transition deal concludes at the end of December, according to Reuters. The financial giant said it sees UK bank shares falling by 10% to 20% in a no-deal scenario, as it raises the prospect of the Bank of England cutting interest rates into negative territory.
Crypto corner: 10 years on from disappearance of bitcoin’s creator
Sunday marked a decade since the creator of the world’s largest cryptoasset vanished from online discussions. Bitcoin’s creator, so-called Satoshi Nakamoto posted on a bitcoin forum on 13 December 2010 in relation to preventing denial of server attacks to the bitcoin network before logging off never to be heard from again.
The identity of the creator is unknown to this day, despite a panoply of theories and ideas. Not even their age, gender, or whether it was one single person, is known. Bitcoin itself is over 10 years old, invented in 2008 with the ledger for transactions beginning on 3 January 2009. The cryptoasset has climbed stratospherically in price in that time too.
All data, figures & charts are valid as of 14/12/2020.
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