Monthly Review: January 2021

Monthly Review: January 2021


United States

While the $1.9tr stimulus package has yet to be validated by the Senate, J. Yellen pushed for big stimulus at a Senate hearing. The US gross domestic product grew at an annualised rate of 4% in the fourth quarter. The year 2020 ended with a contraction of 3.5%, the worst performance since 1946. Consumer confidence recovered in January while consumer prices accelerated in December to 1.4% YoY. The U.S. economy damaged jobs in December for the first time in eight months as a result of the accelerating coronavirus epidemic’s impact on business workforces (unemployment rate at 6.7%).

Euro area

Inflation remained stable at -0.3% (annualised) in December, its fifth consecutive month in negative territory, due among other things to the fall in energy prices While countries are struggling against the new virus’ variants, the French economy contracted by 8.3% in 2020. The German government revised its 2021 growth forecasts downward to 3% versus 4.4%, while its business climate deteriorated in January (IFO). While Italy is accustomed to political uncertainty, current political instability caused by the Prime Minister’s resignation cast a shadow over reform plans.

United Kingdom

According to figures published at the beginning of the month, UK housing and manufacturing sectors improved despite tightening restrictions. Unemployment rate rose to 5% in September-November, its highest level since 2016. The economy shrank for the first time in six months in November, with UK output printing -2.6% compared with October. Inflation figures for December came higher at 1.4% annualised. A faster pace of price rises reduces the pressure on the UK central bank to ease monetary policy further. It is worth noting a successful start to the vaccination programme.


In December, the Swiss unemployment rate came at 3.5% and inflation figures came lower at -0.8% YoY. For the same month, Swiss watch exports decreased by 2.5%. Money supply M3 grew at 6.5% versus 5.8% in November. The economic barometer, as published by the KOF Swiss Economic Institute, dropped this month for the first time since July 2019. This reflects continued uncertainty caused by the pandemic as cases continued to grow.

Central banks:

Federal Reserve (next meeting: March 17th)

During its first meeting of the year, the Federal Reserve left its main interest rate and the amount of its purchases of securities unchanged, while reaffirming that the institution is ready to strengthen its support for the economic recovery if necessary. The emphasis on the possibility of a lasting slowdown in the recovery suggests that the central bank remains committed to maintaining a highly accommodative monetary policy for several months. The FED said it will keep rates close to zero percent until the economy reaches full employment and inflation exceeds 2% for some time.

European Central Bank (next meeting: March 11th)

Despite growing concern that a renewed surge in Covid-19 cases could stall the economy’s recovery, the ECB maintained its monetary support measures: i/ it kept rates on hold, ii/ the Pandemic Emergency Purchase Programme remains at €1.85tr until at least March 2022 with a possibility of not using it in full or recalibrating it if necessary, iii/ Asset Purchasing Programme continues with net purchases at €20bn per month with no specific deadline and iv/ conditions for TLTRO/PELTRO (Pandemic Emergency Long Term Refinancing Operations) remain unchanged.

Bank of England (next meeting: February 4th)

A Financial Times survey showed that investors believe the central bank’s quantitative easing programme is a “thinly veiled attempt to finance the government’s deficit to keep its borrowing costs down”. Members of the Environmental Audit Committee urged the BoE to start aligning its corporate bond portfolio with the international climate agreement before November’s COP26 summit. Some members of the central bank are considering negative rates to help heal the economy.

Swiss National Bank (next meeting: March 25th)

The Swiss National bank will pay the government as much as CHF 6bn a year, as part of a revised agreement regarding the profit the institution generates on its foreign exchange reserves. Data showed that the central bank holds 40% of euro currency in fourth quater (unchanged versus Q3) and US dollar exposure was unchanged at 36%. The proportion of reserves invested in equities was unchanged at 20%.

Market Issues:

  • US election, pandemic and delay in delivery of vaccines were the main triggers in January. While Democrats took control of the Senate as final vote tallies validated victory in Georgia, Congress’ certification of J. Biden‘s electoral win was interrupted by Trump’s supporters invading the Capitol. Finally, the new President was certified after authorities regained control of the institution. House democrats introduced a resolution to impeach D. Trump, joined by ten Republican representatives. M. Pence, the vice president, rejected demands to act on Trump’s ouster and ruled out the use of the 25th amendment. While the pandemic is hitting hard with new variants developing across the globe, J. Biden unveiled a $1.9tr stimulus package, including $415 billion to strengthen the fight against COVID-19, approximately 1,000 billion in direct aid to the households and some 440 billion in support for small businesses and municipalities most seriously affected by the health crisis. Americans will receive $1,400, far more than the $600 paid under the latest stimulus package passed by Congress. Unemployment benefit will be increased to $400 per week, up from $300 per week currently and extended until September. Faced with the rapid increase in the number of people infected by the virus, the European countries, one after the others, have tightened constraints, from curfews to border closures. Mass vaccination campaigns began but announcement of delays in delivery by Pfizer/BioNTech and Moderna increased fears about the global economic consequences of the health crisis.
  • In December, core sovereign rates drifted up (with the US 10-year breaking the 1% threshold to reach 1.1855% before receding slightly) and credit spreads inched slightly wider, especially on the investment grade spectrum. While primary supply weighed on the asset class with bonds from every major market segment in January, sentiment deteriorated at the end of the month with risky assets under pressure. Italian yields suffered the most on political turmoil. Equity indices in core countries hit new record highs.
  • The US Federal Reserve and the European Central Bank kept their accommodative stance, ready to act if necessary.
  • The Dollar index improved during the course of the month. From 1.2349 on January 6, the euro currency underperformed versus the US Dollar to close the month at 1.2134. Gold drifted down to 1847, losing 2.69% in January The best known of the crypto currencies, i.e. bitcoin, was very volatile: it reached 41,981 dollars for the first time in history before receding to close the month at 32,761, with a performance of 12% in January. Oil prices closed the month higher, while being penalised by fears for demand as the coronavirus pandemic continued to spread.
  • In emerging markets, primary market saw a flurry of new issues which received decent demand as investors continued their search for yield. It is worth noting that Asian investors were concerned, among other things, about the continued rise in Chinese short-term money market rates, which fueled fears of liquidity pressures orchestrated by Beijing to curb the rise in equity prices.

Credit Markets:

  • With its second Moody’s upgrade in four month to A1, the rating agency ranks Morgan Stanley above peers.
  • Moody’s followed S&P and placed Fiat Chrysler in investment grade territory
  • Enel has been upgraded to Baa1 on its senior rating and Baa3 on the perpetual notes
  • In the Auto sector, Tesla delivered a record number of cars at the end of the year. PSA and Fiat Chrysler finalize their merger. Renault announces that its worldwide sales for the year 2020 have fallen by 21.3% while the auto market has fallen by 14.2% in the context of the Covid-19 global pandemic and associated containment measures. PSA sales collapsed by more than a quarter in 2020. The American automobile manufacturer Ford announced Monday the closure of its last three factories in Brazil, with nearly 5,000 redundancies, in a sector plunged into crisis by the Covid-19 pandemic
  • Microsoft invests in Cruise, the autonomous vehicle subsidiary of General Motors
  • Bayer came to the market with a EUR4bn offering in four parts (4, 8, 10.5 and 15-year bonds).
  • Veolia has successfully issued €700 million of bonds maturing in January 2027 at a negative rate of -0.021%, a first time for a BBB issuer for this maturity
  • The Spanish operator Telefonica announced an agreement to sell the towers of its subsidiary Telxius Telecom in Europe and Latin America to American Tower Corporation for EUR7.7bn
  • Total announces the acquisition of Fonroche Biogaz, the French market leader in renewable gas production with a market share of more than 10%. Total and Engie have signed a cooperation agreement to design, develop, build and operate the Masshylia project, France’s largest renewable hydrogen production site (at Châteauneuf-les-Martigues). Total announced the acquisition from the Indian group Adani of a 20% minority stake in Adani Green Energy Limited, the world’s leading solar developer
  • Sanofi announces agreement to acquire Kymab, a biopharmaceutical company specializing in the clinical development of human monoclonal antibodies with implications in immunology and immuno-oncology
  • Fitch is acquiring CreditSights Inc. as the company seeks to broaden its research coverage of investment grade.
  • Alimentation Couche-Tard has broken off takeover talks with the French Carrefour after opposition from the French government
  • The German airline company Lufthansa is losing one million euros every two hours, which represents “an important improvement” compared to the low reached last year with the COVID-19 pandemic, according to Carsten Spohr, chairman of the board of directors
  • KLM announced it will cut as many as 1,000 jobs (on top of 5,000 shed last year) as travel recovery hopes fade due to pandemic.
  • The French State is going to support the cross-Channel company Eurostar, in great difficulty because of the health crisis, in conjunction with the British government, the Minister Delegate in charge of Transport Jean-Baptiste Djebbari said

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