The first month of the new year was affected primarily by the continuing story around Covid-19, but US political events also took centre stage, with the swearing in of the new administration of President Joe Biden.
Will Covid continue to be a factor this year?
Despite the development of vaccinations, the world is still facing a large wave of Covid, that rose after the Christmas period. Global cases have now exceeded 100mn, while the death toll has exceeded 2.1mn.
New variants are the immediate threat: New variants of Covid-19 from the UK, Brazil, and South Africa are now starting to spread across the world. The greater infectivity of these new strains could mean substantially larger outbreaks, and Europe is already looking at further lockdowns.
Vaccines can help, but not immediately: Vaccinations have continued to speed up, but the rollout is still nowhere near the levels needed for herd immunity. The new variants should also be handled by the vaccine, but they could require some adjustments. Unless vaccine rollout is sped up, however, Covid is likely to be a factor for most of 2021 as well.
Global distribution is looking marginally brighter:With vaccine manufacturers in India, China, and Russia developing and manufacturing vaccines of their own, the developing world might be able to access vaccination early after all. However, the sheer scale of what is required could still mean huge portions of the world’s population remain unvaccinated in 2021.
What other risks are on the horizon?
The US political situation is taking a breather, but is fragile: After an unprecedented pro-Trump attack on the US Capitol failed, the presidential transition to the Biden administration ended up happening smoothly. Democrats also have a slim majority in Congress, but the hyper-partisan political environment is expected to remain highly volatile.
Some are raising worries of an inflation spike: With the current low interest rate environment boosting the flow of money, some analysts are continuing to worry about inflation. The Federal Reserve is also expecting an uptick in 2021, before moderating again in subsequent years, but the bigger worry is whether the world will see stagflation like in the mid-late 20th century.
Concerns about emerging market debt remains: Emerging markets have seen record inflows on the back of vaccine optimism combining with the low interest rates. However, there are plenty of developing world economies that are highly distressed, and any slowdown in these inflows could push many of them into default.
How have commodities been performing?
Oil prices were flat for most of the month:
After rising in previous months on the back of vaccine optimism, prices of oil were flat across January, both due to increased supply from the US market, as well as worries on short term energy demand due to lockdowns in China and Europe. Brent crude traded between highs of US$ 56.58 per barrel on the 12th of January and lows of US$ 54.75 per barrel on the 18th of January.
Gold prices fell from end December spikes, but continued flatter:
Despite vaccine rollouts and expectations of a 2021 recovery, gold prices didn’t continue a substantial falling trend in January, and merely retreated from highs seen at the end of December. Prices showed stability primarily due to a weaker dollar, and spot gold fell from highs of US$ 1954.40 per ounce on the 5th of January to US$ 1809.75 on the 17th of January, before recovering to the US$ 1850 mark.
Get Ready for the Emerging Market Bubble to Burst
With emerging market assets rising despite weakness seen in their real economies, some analysts are beginning to think that this is starting to resemble an overvalued bubble in the emerging world. This is especially driven by concerns of debt, and the concern that unless emerging markets address their debt sustainability, they could see a massive exodus of capital in the next 2 years.
IMF chief sees ‘high degree of uncertainty’ in global outlook
As the IMF tries to support emerging markets across the world, the uncertainty surrounding the global economy in 2021 has made action difficult. Debt levels are rising, and many worry about upcoming defaults in the year. Releasing SDRs (the IMF’s reserve currency unit) could serve as a form of monetary easing by the IMF, and ease its ability to lend to more distressed economies.
Study shows vaccine nationalism could cost rich countries US$4.5 trillion
A new study commissioned by the ICC Research Foundation has found that the global economy stands to lose as much as $9.2 trillion if governments fail to ensure developing economy access to COVID-19 vaccines, as much as half of which would fall on advanced economies.
Fed set to look beyond possible post-pandemic inflation shock
Fed policymakers have little doubt that costs for many goods and services will jump this year, a bitter pill for consumers if gasoline, travel and other prices start to rebound from sharp declines last year. But, Fed officials argue, that's part of getting back to normal, not the start of a more persistent inflation problem.
Europe, Struggling to Exit the Pandemic, Faces Bleak 2021
With the spread of the new Covid-19 variant combining with a slow vaccine rollout, Europe is looking at a weaker 2021 than originally expected. Many major economies are once again in a strict lockdown, and others are contemplating moving into one. As stimulus expectations for 2020 were barely sufficient, some are starting to worry that Europe might actually see a recession for 2 years in a row.
Compiled by: Chayu Damsinghe
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.