This week the Donald Trump era came to an end as Joe Biden was inaugurated as the 46th President of the United States in a low key and, thankfully, low drama ceremony. The possible armed uprising of Trump fans never materialised as the presence of 25,000 soldiers possibly dissuaded would be revolutionaries who bought their assault rifles at Walmart. Within his first few hours Biden signed executive orders re-joining the Paris climate agreement as well as introducing measures to fight the Coronavirus outbreak, among others. With the White House looking like it’s getting back to business as usual, we’re looking forward to not having to write as much about it.
Elsewhere, the UK continues to push the pace of the vaccine rollout, meeting its target of at least 2 million people a week for the first time. We don’t want to obsess over these figures every week but they have become the most important statistics we look at. The UK’s handling of the pandemic so far has been poor, with the highest death rate in the world, but there is a chance of redemption if we crush it in the home stretch.
US: STIMULUS PLAN PUSHES GLOBAL EQUITIES TO NEW HIGHS
Global equity markets hit fresh all-time highs this week as new US President Joe Biden got to work. Biden unveiled his stimulus plan for the US economy last week and the $1.9tn package includes new direct payments of $1,400, extensions to emergency unemployment benefits and the moratorium on evictions, more money for businesses, as well as funds to help surpress the pandemic.
The bill is already facing opposition from Republicans and may be scaled back to pass Congress but the president’s plan was supported by Janet Yellen, Biden’s nomination for US Treasury Secretary. At her confirmation hearing earlier this week Yellen said “The smartest thing we can do is act big. In the long run, I believe, the benefits will far outweigh the costs”. The potential additional US government spending helped to further increase US and broad global equity indices, while Emerging Markets also increased due to expectation that the dollar will continue to fall.
CHINA: GDP SHOWS CHINA HAS SHAKEN OFF AFTER EFFECTS OF COVID-19
China’s recovery from the effects of the coronavirus outbreak continues as the latest GDP data shows its economy grew by 6.5 per cent in the last three months of 2020. The fast growth seen in the fourth quarter pushed annual GDP growth for 2020 to 2.3 per cent and it is likely to be the only major economy to avoid a contraction in its annual GDP. The UK is forecast to see a contraction of 11 per cent and the G20 countries are expected to contract by an average of 3.8 per cent.
The rate of growth in Q4 shows the Chinese economy growing faster than before the coronavirus was first reported. The growth was powered by an increase in industrial production and estimates for 2021 is for GDP growth of between 7 and 8 per cent. The big increase in industrial activity has helped push the value of China’s imports to an all-time high and has contributed to the sharp increase in industrial commodities in the second half of 2020.
EQUITIES: NETFLIX PLANS END TO DEBT-FUNDED GROWTH
Netflix added 37m subscribers in 2020 to push its total number of paying customers above 200m. The streaming service is currently winning the war for subscribers by some distance, with Disney +, the second most popular service, reporting just under 90m. Netflix’s growth has been driven by huge amounts of borrowing to pay for original programming but growth in subscribers combined with increases to its monthly fees have allowed the company to declare an end to borrowing to fund new content.
News that it is also considering share buybacks to return money to investors saw Netflix shares increase 16 per cent earlier this week. The company now expects to break even in 2021 and become cash flow positive next year – 20 years after its stock market listing. Investors’ preference for growth is shown in the chart. Netflix’s share price has increased from $15 to $579 since launch in 2002. In contrast, JP Morgan (which this week posted record profits) has seen its share price rise from $35 to $135 over the same period.