Exposure rates of the Dorval Asset Management Range – 22nd January 2021

The new Covid-19 variants are considerably speeding up the epidemic as we wait for vaccines to turn this situation around. Restrictions on both movement and activity are thus set to continue – and even step up – for several weeks ahead. However, at this stage, restrictions have only led to a moderate deterioration in the economy.

So curfews and lockdowns are poised to continue restricting movement and economic activity, but at this point, economic indicators show that efforts to handle the pandemic have had a much smaller impact than many observers had feared. In the euro area, the business climate as assessed by the composite PMI admittedly slid to 47.5 in January vs. 49.1 in December, but it still remains above November’s 45.3 mark, and undeniably outstrips figures last spring (cf. chart 1). 


Since the fall, the economic impact of restrictions on movement
and economic activity has remained moderate

Business climate in the euro area (composite PMI, RHS)
Oxford University activity restriction tracker in the euro area (inverted scale, LHS)


Production facilities and building sites are still open in all countries, along with a great number of services, while the retail sector has been affected as businesses open and close in fits and starts. Household income is down only very slightly as it is propped up by government relief measures, while consumer spending remains robust albeit volatile, particularly for spending on manufactured goods and food. These trends are propelling manufacturing and world trade in their recovery track, and we can also observe this upturn in France, as indicated by the latest INSEE surveys (cf. chart 2). If there is a fresh lockdown in France, past experience has shown that these indicators are poised to deteriorate again temporarily – as is currently the case in the UK – before taking an upturn once more.


Business climate in France
INSEE surveys

Manufacturing / Services / Trade


Across the pond, the US economy is enjoying additional support compared to Europe. Interest rates on this market have declined much more than in other countries since 2019, so residential construction is enjoying a major boom, with building permits surging a further 4.5% in December, after a 5.9% jump in November, to stand at their highest since mid-2006 (cf. chart 3). According to the Atlanta Fed, residential construction climbed 32% on an annualized basis in 4Q 2020, while January surveys for the sector suggest that this positive momentum will continue in 1Q 2021. We note that the recent yield surge on US Treasuries has hardly had any effect on mortgage loan rates yet, which remain grounded very close to their all-time low.


Number of building permits soars in United States

Private housing units, millions


The contradictory situation on the pandemic – vaccines but also new variants at the same time – along with investors’ already highly optimistic positioning have slowed the upswing on the financial markets, and even triggered some profit-taking on very cyclical stocks. In Europe, fears of fresh elections in Italy are also dragging down showings, while conversely in the US, the Nasdaq is benefiting from the current uncertain situation to come out well in relative terms. We have now taken all our profits on our tactical positions in our international portfolios (futures contracts), thereby slightly reducing our equity exposure rate.



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