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Ok. Got itWith the reinforcement of stricter lockdown measures, the rebound in global growth we saw in the third quarter is unlikely to keep up the momentum.
Several countries and cities have made the decision to reinforce broader lockdown measures. Europe, Germany, France and the UK have all imposed national regulations to address the rising infection and hospitalisation rates. The US is similarly struggling with the progression of the virus, which has seen cities and states return to stricter measures. Mobility data shows less of a decline than in the initial lockdowns, suggesting that households and businesses have found ways to adapt. Nonetheless, this progression is still likely to influence consumer behaviour and put a dampener on economic activity, be it less severe than before.
The US recorded GDP growth of 33,1% after a decline of -31,4% in the second quarter.
The Eurozone and the UK also saw improved economic data with economic growth of 12,6% and 15,5% respectively, neither quite reversing the Covid-19-related slowdown.Third-quarter growth numbers were always due to benefit from the low base created by a devastating second quarter. With lockdowns reimposed in the fourth quarter, it is unlikely the last quarter of 2020 will continue the momentum.
Despite the contestation from sitting president Donald Trump, markets welcomed the ‘conclusion’ of US elections, with the outcome setting expectations that the US would once again play a coordinating role on a global scale. With trade likely to remain a key area of contestation and opportunity, the world took note of Asian countries, including China and Japan, signing the Regional Comprehensive Economic Partnership (RECP), solidifying the world’s largest regional free-trade agreement. Results from vaccine trials further buoyed sentiment, supporting risk appetite and driving markets to new highs. The global bellwether, the S&P 500, gained +10,9% over the month, supporting a +12,8% gain for the MSCI World index. Emerging markets benefitted from a weaker US dollar and resilient economic data from China. Improved risk appetite favoured emerging-markets equities and bonds, cyclical exposure and small-cap stocks.
Although investors and US voters knew that the final election results would take longer than usual due to postal ballots, it did not take long for the markets to respond to the announcement that Democratic candidate Joe Biden would be the new president of the United States. The Democrats retained control of the House of Representatives, but markets will need to wait longer for the conclusion on the Senate. Republicans have won 50 seats, but two seats in Georgia, where neither party’s candidate got enough votes, will be determined in two run-off elections in January. Markets will wait in anticipation to see what type of fiscal package the new regime can get across the line. Also trying to get across the line, Europe’s €1,8trillion budget and €750bn recovery fund continues to face resistance from Hungary and Poland, who refuse to accept the rule of law conditions tied to payments. And then the last line: 31 December marks the end of the Brexit transition period with no firm agreement on the horizon. Time will tell if this is yet another line or a real deadline.
November brought progress reports on vaccine trials. Although China and Russian already provided early or limited approval for a few vaccine candidates, this happened without waiting for broader phase three trials. As such, Pfizer and BioNTech’s announcement of an efficacy rate above 90% for its vaccine phase three trials marked the first result from independent clinical trials. Moderna, the University of Oxford and AstraZeneca and Johnson & Johnson followed with their own announcements. In most cases, full trial data has yet to be released and will no doubt be scrutinised. Even so, the UK has already become the first country to provide regulatory approval for the BioNTech and Pfizer vaccine, with inoculations to be made available in December. While transportation, storage, availability, access and funding remain only a few of the outstanding hurdles, the vast amount of progress this year still offers hope for a better 2021.