Equities surge on encouraging vaccine results

Global markets started November in an upbeat mood as the initially contested U.S. election was finally resolved and delivered a victory for Joe Biden from the Democratic Party. 

Investors also welcomed the encouraging results from COVID-19 vaccines trials.

The combination of these significant factors boosted market sentiment throughout the month. Global shares rose 11.6% and 7.4% higher in hedged and unhedged terms respectively, and the Australian dollar also scored strong gains, rising 4.5% against the U.S. dollar as a risk-on sentiment swept markets.

The Australian equity market performed strongly as investors rotated towards cyclical stocks and sectors which were hit hardest during the initial stages of the pandemic. The local index finished 10.2% higher, led by the Financials and Energy sectors.

On the other hand, defensive assets had a lacklustre performance in November. Australian fixed income (-0.1%) fell marginally while global fixed income (hedged) was boosted by strong Australian dollar gains and US bond returns.

The Reserve Bank of Australia (RBA) cut the official interest rate to 0.10 per cent from 0.25 per cent in early November and announced a quantitative easing program of $100 billion.

In the US, recent economic data also showed signs of improvement. The purchasing managers’ index (PMI) surveys for November showed that both manufacturing and services activity increased for the month with the indices both rising more than expected.

But it was a different picture in Europe. With COVID-19 lockdowns imposed in some parts of the Eurozone, recoveries in the manufacturing and services sectors took a hit. The manufacturing PMI for November declined by 1 point to 53.8, while the services component contracted again, falling 4.9 points to 41.3.

In its recent COVID-19 update, the World Health Organisation (WHO), reported that cases have surpassed 62.5 million globally while the death count had risen to 1.5 million.