Market Insights – November 30, 2020

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Market Insights – November 30, 2020
The 02 December 2020

In November, additional COVID-19 restrictions were brought in across most of Europe, causing economic newsflow to deteriorate. Markets weren't rattled by this, however, and have instead remained focused on the recent drop in infection rates and the prospect of an effective vaccine...

Essentials

In November, additional COVID-19 restrictions were brought in across most of Europe, causing economic newsflow to deteriorate. Markets weren’t rattled by this, however, and have instead remained focused on the recent drop in infection rates and the prospect of an effective vaccine.

China’s PMIs recorded a further uptick in growth in November, thanks to a better-than-expected improvement in both the services sector and manufacturing. Industrial output strengthened for the ninth month in a row, buoyed by new orders, while the services sector recorded a sharp rise, reaching 55.7 – its highest level since June 2012.

Gold prices continue to correct and have now dropped below USD 1,800 per ounce. This means that investors have finally become bearish on this metal. We are keeping an eye on technical levels, with a view to potentially increasing our exposure to gold once again.

Yellen-Powell – the perfect couple?

Janet Yellen is set to become the USA’s first female treasury secretary. In 2018, she was unceremoniously denied a second term as Fed chair by Donald Trump, who wanted to sever all ties to the Obama years. But with this key role within President-elect Joe Biden’s administration, she’s now making a big comeback after a short retirement. The US purse strings will be in experienced hands. Ms Yellen was chair of the San Francisco Fed from 2004 to 2010 and was Ben Bernanke’s right-hand woman in the wake of the subprime crisis, becoming chair herself in 2014. Her expertise is widely recognized, as is her in-depth knowledge of the US labour market. Her excellent understanding of monetary policy and the banking system will be a major asset as well. It’s also the first time in US history that a former Fed chair has taken control of fiscal policy. This is especially important given that the stimulus packages adopted around the world since the start of the public health crisis have sought to combine monetary and fiscal measures. The Fed’s current chair, Jerome Powell, has also earned plaudits for his work since the start of the pandemic. He quickly brought interest rates back to zero and injected more liquidity into the financial system by using the asset purchase programmes from the previous crisis.

He also introduced some innovative measures, such as enabling the Fed to lend directly to companies. But his relations with the current administration have always been fraught, and the constant pressure and criticism from President Trump raised fears that the Fed would lose its independence. If Mr Powell keeps his job for a second term – which seems likely – he will certainly be able to count on easier relations with the executive and an effective relationship with the new treasury secretary. Hopes are high that the soon-to-be-available vaccines will bring the COVID-19 pandemic under control and that life will return to normal in the months and years to come. But there are enormous economic and financial challenges ahead and bringing someone as experienced as Janet Yellen into what will be a more predictable US administration will definitely reassure both US and international investors.

2021: still some earnings surprises in store in the US

Depuis le début de l’été, les indicateurs et publications économiques ont constamment dépassé les prévisions des économistes. Les aides gouvernementales et la stimulation monétaire de la Réserve Fédérale ont permis notamment d’éviter une vague de faillites et une flambée du chômage qui auraient en fin de compte couté bien plus que les montants engagés dans le sauvetage de l’économie. Les résultats des entreprises ont suivi le rythme et les publications des deux derniers trimestres ont donné lieu aux plus importantes surprises positives jamais observées
en comparaison des estimations des analystes. Elles ont conduit notamment à de fortes révisions haussières sur les prévisions de 2020. Pourtant, malgré ces données encourageantes, les anticipations pour 2021 restent étrangement frileuses.

Depuis le pire de la crise elles n’ont été révisées à la hausse que… de 3% ! Plus étonnant encore, l’annonce de l’arrivée prochaine de plusieurs vaccins efficaces contre le Covid-19, à même d’accélérer la reprise conjoncturelle en 2021 de secteurs dévastés comme les loisirs, la restauration ou le tourisme, n’a pas changé la donne. Toujours pas de révisions des résultats pour l’année prochaine. Par conséquent, nous restons convaincus qu’un potentiel énorme de surprises positives persiste en 2021. Et le rebond anticipé des bénéfices de 38% pour le prochain exercice pourrait se révéler bien plus impressionnant. Le corolaire à ce phénomène est que la valorisation des actions américaines est grossièrement surévaluée et ne devrait pas être pas un frein à une progression des bourses l’année prochaine.

 

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