The Vaccine Effect

The relief rally continued in December, albeit more subdued than in the previous month. The decisive factor, as in almost all of 2020, was Corona. The UK was the first country to start vaccinating, while central banks continued to provide the markets with enormous liquidity. In parallel, there were noticeable signs of economic life, especially from China, but also from the euro area.

In December, the relief rally of previous month continued - albeit more moderately. The German DAX index rose 3.22% to end the year just below its February 2020 peak, while the broad European Stoxx Europe 600 index gained 1.72%. Across the Atlantic the S&P 500 gained 1.41%. The Hang Seng Index in Hong Kong reached a gain of 1.07%. The MSCI World Index advanced 1.83% as a barometer for global equities - all index data in euro terms.

Corona was also the determining factor during the last month of 2020. This was true in negative and positive terms. In Germany and in many other European countries governments imposed stricter lockdown measures in order to curb the rising numbers of new infections again. On the other hand, Corona vaccinations started in the United Kingdom. Great Britain was the first country to allow BionTech/Pfizer's vaccine followed by the US and EU. In addition, Moderna in the U.S. and AstraZeneca in the U.K. were the two other vaccines to receive approval.

To mitigate the impact of the lockdown measures central banks continued their support programs. The ECB increased its bond-buying program by 500 billion euros to 1,850 euros and extended it by a further nine months to March 2022. In the USA the Federal Reserve intends to continue its purchase program in height of $120 billion per month until inflation picks up visibly and employment is significantly higher than today. In November US core inflation (excluding food and energy) was unchanged year-on-year 1.6% and the overall inflation at 1.2%. Compared to last year the core inflation of the Euro zone was kept unchanged 0.2% while overall inflation is expected to be -0.3%. These rates are expected to pick up noticeably in the coming months as the effects of the higher oil price will be visible.

Continued liquidity from the major central banks provided further tailwind for the stock markets in December. In addition, the leading economic indicators for the euro zone improved: the business climate improved and the purchasing managers' indices for industry and services increased. In Germany the former reached its highest level in three years. In addition new orders for the German industry rose for the 6th consecutive month, industrial production increased again and exports expanded slightly.

Also in China some of the economic data showed a significant increase; for example, exports climbed by a whopping 21% year-on-year - a consequence of the newly established Asia-Pacific free trade area. A good sign of a reviving economy also came from the oil price. Brent crude rose from $47 to $51 per barrel, topping $50 for the first time since March 2020. In the USA the Congress agreed on a new Corona aid package worth $892 billion from which each US citizen will receive a one-off direct payment of $600.

On the other hand various economic indicators in the USA declined including purchasing managers' indices, retail sales and consumer spending. Government lawsuits concerning monopolies against various internet giants in the USA and China also had a negative impact, particularly on the technology sector. In this environment bond markets showed a mixed performance. In Germany yields of 10-year Bunds remained virtually unchanged at -0.57% while yields on their US counterparts rose from 0.84% to 0.91%. The price of gold increased from US$1,774 to US$1,898 per troy ounce.


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