The end of 2020 has not always been easy. Fortunately for investors, markets have generally been on the rise. Here’s roughly how the global economy and financial markets fared in the fourth quarter*.
Highlights
Share prices were generally high. In this regard, the year ended on a high note.
Successive waves of COVID-19 have caused many problems across the world.
Central banks have had to support the global economy.
(* A quarter is three months. The first quarter (Q1) runs from January to March. The second (Q2) is from April to June. The third (Q3) is from July to September. And the fourth (T4), from October to December.)
Do new COVID-19 vaccines represent hope for investors?
The COVID-19 pandemic continues to affect the global economy. The world hopes that life will return to normal when the virus is brought under control. The deployment of vaccines, therefore, gives hope.
What happened to the economy when the world had to confine itself?
In each region, the extent of the containment depended on the spread of the virus. Recent lockdowns have slowed economic activity without stopping it.
The economy has grown in significant powers, such as the United States and China. Europe and Japan also recorded gains.
Towards the end of the year, the US government announced a $900 billion relief package. It’s objective: to financially support American businesses and citizens.
Most central banks kept interest rates low. They also continued to buy titles to help businesses and consumers.
What was the reaction of global financial markets?
Global equity markets were up in the fourth quarter. In general, investors preferred equities to bonds and cash. Advancements in technology have helped many people adapt to the pandemic. They have also enabled the information technology sector to make significant gains.
The Canadian equity market rose in the fourth quarter. The excellent news about COVID-19 vaccines helped push up stock prices. The needs were also supported by the policies of the Bank of Canada (BDC). Healthcare and finance are among the most vital sectors in Canada.
The price of Canadian bonds also rose slightly. Expectations of rising inflation helped Canadian 10-year bond yields.
US markets hit record highs. Investors now believe that economic recovery is coming soon.
Before the end of the quarter, the United Kingdom and the European Union reached a trade agreement. The United Kingdom is pursuing its goal of leaving the European Union.
What happened with the price of oil and gold?
The price of oil rose during the quarter. And demand may increase as the economy progresses.
The price of gold, on the other hand, was little changed. Investors preferred other parts of the market. Usually, investors buy gold when the markets and the economy are in trouble. Optimistic about the future, investors, therefore, did not seek the “safety” of gold.
Is Canada’s economy growing?
The Canadian economy saw a marked improvement in the third quarter (reported in the fourth quarter). Rising household spending has been beneficial for growth, as has increased investment in real estate.
The possibility of a significant global economic recovery has been positive for the Canadian export market. The Canadian economy as a whole has emerged stronger. The labour market also improved, with job creation in the fourth quarter.
The growing number of COVID-19 cases also slowed the economy in the fourth quarter but did not bring it to a complete halt.
The BDC maintained its key interest rate at 0.25%. It plans to keep it low but could increase it if inflation reaches 2%.
The BDC also maintained its bond purchase program to support the financial markets and accompany the recovery.
Economic outlook: what can investors expect?
The pandemic still poses many risks to the global economy. First seen in the UK, a new strain of the virus has spread to other countries.
This new strain could make the virus gain ground. However, scientists and public health authorities remain confident that current vaccines will be effective.
Forecasts indicate that the markets will take advantage of them.
