Weekly View - New Year Resolutions
If 2020 demonstrated anything, it was the extraordinary resilience of markets in the wake of the covid-19 crisis. As 2021 begins, two immediate events invite attention. First is the decision of the US Senate to issue one-off individual pandemic aid checks of USD600 rather than the USD2,000 preferred by Democrats and outgoing president Donald Trump. Second is the potential for Democrats to win at least one of the seats in Georgia’s run-off election tomorrow, which could improve their chances for pushing forward legislation. This is a possibility that the markets have not appreciated fully. Meanwhile, the record levels reached by Bitcoin is a reminder that central banks injected USD14 trn into the global economy in 2020. The dollar’s decline, including its fall to USD1.22 against the euro at year’s end, is the mirror image of this activism. In 2021, we will see the continued depreciation of the US dollar, as its key advantages—high yield and the US’s economic growth outperformance—have weakened significantly. Our 12-month projection for the EUR/USD rate is USD1.26.
After seven years of negotiations, Europe and China have signed an investment treaty – the most concrete evidence that the world began to function independently of the US during the Trump presidency. The challenge for Joe Biden will be to put the US back in the centre of international relations, while in the short term the new treaty has the potential to be a source of tension with Europe. Meanwhile, the continuing pressure being exerted by the Chinese authorities on Ant Financial is a reminder that the financial sector in China is first and foremost a servant of political and development objectives, and that in a dispute between bankers and authorities there can be only one winner.
Covid-19 cases continue to proliferate, but now against a background of vaccine roll-out. There are teething problems with vaccine deployment and some tough months lie ahead but the good news is that the new virus variant is no more deadly than previous ones and that vaccines seem to work. On balance, we believe that we can see light at the end of the tunnel.