Interactive Investor

Market snapshot: Biden’s stimulus and UK GDP

15th January 2021 08:27

Richard Hunter from interactive investor

Less than a week before his presidency begins, Joe Biden has issued a bold statement of intent.

Proposals for another extensive stimulus package in the US and a better than expected GDP number in the UK have kept markets on an even keel.

President-Elect Biden made an early statement of intent with a proposed $1.9 trillion stimulus package aimed at providing the US economy with a much needed shot in the arm, including a significant boost to spending on the testing and vaccination effort. Meanwhile, a disappointing US jobless claims number - higher than expected at 965,000 with leisure and hospitality still under severe pressure - underlined the requirement for further support.

Further colour will be given to the state of the economy over the next few weeks after the fourth-quarter reporting season kicks off today with updates from the likes of Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM)

Market reaction to the stimulus was muted given the need for eventual repayment of the debt which could manifest in higher taxes. Even so, in providing a prop for economic recovery, the news is of course positive and investors remain generally optimistic on a medium term view. As the second week of trading in 2020 comes to a close, the Dow Jones has added 1.3%, the S&P 500 1% and the Nasdaq 1.7%.

After six months of growth, UK GDP fell 2.6% November as the second lockdown took hold, although the figure was better than the expected decline of 5.7%. Construction fared well under lesser restrictions, but services including hotels, food and retail again bore the brunt. The anticipated contraction for the fourth quarter as a whole could well be followed by another in the current quarter given the restrictions of a third lockdown, which would lead to a double dip recession. 

However, with the UK largely ahead of the pack with its vaccination rollout programme, rather brighter news is expected in the Spring. In addition, and with Brexit now less of a daily conversation point, a large reason for overseas investors to generally avoid the UK index has been removed.

Despite a subdued start to early trading today, such optimism has enabled the FTSE 100 to continue its brisk start to the year, with the index ahead by 5% so far in January.

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