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3 Minute Economic Summary: December 2020 – January 2021

Article By Adam Camac | | Financial Planning
  • The December quarter was strong for markets, despite a rapid rise in COVID-19 cases in parts of the world, as vaccine’s began distribution after being approved for emergency use in the US and across Europe.
  • November marked a significant turning point in the world fight against COVID-19 as announcements from the three leading vaccine producers were positive. This led to Domestic and International share markets rallying hard, and vaccines ultimately beginning to be rolled out over December. However, new highly infectious strains of COVID-19 have kept markets cautious since the November rally.
  • The uncertainty now will be how Governments deal with the logistics of vaccinating the majority of the population and how long this will take. The medium outlook for economies is looking more positive but in the short-term there remain uncertainties.
  • Joe Biden won the US Presidential election and was inaugurated on January 20th. At the time of writing Biden is planning to take swift action, already announcing a US$1.9 trillion stimulus plan to support individuals and businesses that are struggling with the economic fallout of the pandemic. There still remains some geopolitical risk with Biden yet to announce what his approach to China will be. We anticipate there to still be tension but for Biden’s actions to be more traditional and less aggressive than former President Trump’s.
  • After long Brexit deliberations, the UK and European Union (EU) agreed a deal that came into effect on 31 December 2020. The deal brings more certainty to investors who have been watching from the sidelines, however, there is expected to be a constant future risk of disputes between the UK and EU.
  • Despite some parts of the country going into lockdown, Australia maintained its path to re-opening. With the Australian economy faring better than other countries and news that a vaccine could be widely available in Australia by mid-2021, investors have been optimistic. The positive market performance was also supported by a rising Australian dollar and a surge in iron ore prices.
  • The unemployment rate has decreased from a high of 7.5% in July to 6.8%. Unemployment has been better than expected on the back of the pandemic and it is welcome news that it is trending downwards, particularly with Government support (e.g. JobKeeper) being gradually reduced.
  • The RBA has also made it clear that the cash rate will not increase until inflation is sustainably between 2-3%. We do not expect the cash rate to increase for at least the next year.

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