In an eventful year for global markets, some individuals (and one company) stand out. Here, the FT’s markets team picks out the notable protagonists, and the key person to watch in 2021.
Jay Powell, Federal Reserve chairman
When the financial system began to creak at the start of March, the US central bank acted quickly to stave off a much more pronounced crisis.
The Fed slashed policy rates to zero, pledged to buy an unlimited quantity of government debt and announced new lending facilities in rapid succession that forever changed its role in financial markets during periods of stress.
In moving decisively, Mr Powell earned himself the title of the “maestro” of central bankers, according to Nick Maroutsos, head of global bonds at Janus Henderson.
What comes next may prove more challenging. The Fed is facing tough questions about encouraging undue risk-taking and potentially adding fuel to risky asset bubbles. Colby Smith
Christine Lagarde, European Central Bank president
Christine Lagarde found out the hard way in 2020 how sensitive markets are to every utterance by central bankers. When the then new ECB chief said in March that she was not there to “close the spreads” — or prevent big gaps opening between the borrowing costs of the eurozone’s stronger and weaker members — her words poured fuel on a sell-off in the region’s bond markets.
Italy’s bonds dropped sharply, sending yields on their biggest ever one-day surge. Investors began to question whether the promise of Ms Lagarde’s predecessor Mario Draghi to do “whatever it takes” to keep the euro together still held.
The ECB boss swiftly apologised and spent the rest of the year repairing the damage — with considerable success. Later in March, the central bank launched an €750bn emergency bond-buying effort, which has since been scaled up to €1.85tn. Spreads in the eurozone have collapsed. “It’s been a very steep learning curve, no question about that,” Ms Lagarde told the Financial Times in July. Tommy Stubbington
Angela Merkel, German chancellor
Angela Merkel emerged in 2020 as an unlikely champion of joint borrowing by eurozone members. As one of the driving forces behind the €750bn EU recovery fund agreed in July, she was breaking with years of resistance to burden sharing between members of the currency bloc.
For investors, the establishment of the fund was a powerful statement of solidarity, which along with the ECB’s stimulus efforts bolstered a recovery in riskier assets after March’s dramatic rout. It also ushered in a remaking of Europe’s bond markets, with the EU itself for the first time set to become one of the region’s largest borrowers.
The existence of a pan-European safe asset could help bolster the euro’s role as a reserve currency. Ms Merkel’s conversion during the Covid crisis has taken the EU one step closer to fiscal integration. Tommy Stubbington
Masayoshi Son, SoftBank founder
SoftBank’s heavy-handed foray into US equity options in mid-2020 forced investors to see the conglomerate’s role in global markets in a new light.
In early September, the FT revealed that SoftBank had snapped up billions of dollars’ worth of derivatives linked to individual US tech stocks, earning it the title of “Nasdaq whale”.
Under the direction of Mr Son, the conglomerate was buying options on such a large scale that it helped to drive up the entire underlying market, as banks selling the options were forced to buy stocks to hedge themselves, in what was described as a “tail wags the dog feedback loop”. SoftBank shareholders recoiled, and the unpredictable Japanese group later abandoned its bets.
SoftBank is best known for punchy bets on privately held start-ups; investors now keep a closer eye on its activities in public markets. Katie Martin
Bill Ackman, Pershing Square manager
Hedge fund manager Bill Ackman has attracted plenty of attention in recent years, often for losing money. But in 2020 he scored one of the standout trades of the year, making a quick $2.6bn this spring with a bet on a rout in the credit markets.
Mr Ackman, who had been growing increasingly worried in February about the effects of coronavirus, spent $27m buying credit default swap insurance on tens of billions of dollars of US and European corporate bonds, the first time he had placed bets using CDS since the financial crisis.
As the pandemic began to hammer credit and equity markets, the value of these contracts soared. By the time Mr Ackman made an emotional appearance on CNBC on March 18, around the nadir of the market slump, he had already sold half his position.
In the now-famous interview, Mr Ackman warned that “hell is coming” and that as many as 1m Americans could die if the government did not act, explaining that he had grown super-bearish after waking from a nightmare about the virus’s rapid spread. But in the same interview he also said he was aggressively buying stocks — another bet that was later vindicated — because he expected the Trump administration to tackle the economic fallout from the virus.
Mr Ackman is enjoying a big turnround in his fortunes after four consecutive years of losses that included bad bets on pharmaceuticals group Valeant and a bet against nutritional supplement seller Herbalife. His gain of around 65 per cent this year makes his Pershing Square fund one of the world’s top-performing hedge funds. Laurence Fletcher
Carnival Corporation, cruise operator
When surging coronavirus cases forced the Diamond Princess cruise ship into quarantine in February, it provided one of the first clear signs that Covid-19 was a problem beyond China’s borders. Carnival Corporation, the vessel’s owner, soon became one of the earliest corporate casualties of the coronavirus crisis.
And yet just two months later, Carnival raised more than $6.5bn in debt and equity, demonstrating just how much the Federal Reserve had underpinned capital markets. A $4bn bond backed by the company’s cruise ships set a template that corporate America soon followed: pledging prized assets to unlock funding.
Carnival encapsulated a year in which companies facing near-complete collapses in revenue could still raise billions of dollars in financing. It was at the forefront of many capital markets trends, from convertible bonds to post-vaccine announcement equity raises. And by November Carnival could once again borrow without pledging its assets, capping off a year in which it raised more than $16bn from debt and equity markets. Robert Smith
Prince Abdulaziz bin Salman, Saudi Arabia energy minister
The role of the Saudi Arabian energy minister is generally pretty straightforward: corral Opec and allies like Russia to assist you in managing oil supplies, keeping prices just high enough without overheating.
But when diplomacy fails, what option do you have to respond?
In March Prince Abdulaziz bin Salman, the half-brother of Crown Prince Mohammed bin Salman, decided to show allies and rivals alike. When Russia baulked at further production cuts in the early stages of the pandemic, Prince Abdulaziz led Saudi Arabia in launching an all-out price war that hammered the oil market even before lockdowns really started to slash oil demand.
Brent crude did not so much fall as implode, losing 24 per cent in just one session and continuing to slide for the next six weeks.
It ultimately took an intervention from US president Donald Trump, fearing for the future of the US oil industry, to get Prince Abdulaziz to change course. In April a deal was agreed for the largest ever production cut. But was Prince Abdulaziz’s price war a sign of things to come? David Sheppard
Berat Albayrak, former Turkey finance minister
Turkey’s lira lost 46 per cent of its value during the two-year watch of Berat Albayrak, who quit as finance minister in November. Much of the blame belongs to his father-in-law, president Recep Tayyip Erdogan, whose obsession with credit-fuelled growth and deep aversion to higher interest rates has for years put strain on the currency.
But Mr Albayrak, 42, was the driving force behind a disastrous attempt to hold the lira steady. Turkey’s central bank spent tens of billions of dollars on a failed intervention that left a deep hole in the country’s foreign-currency reserves. After Mr Albayrak’s resignation in November, the lira enjoyed its biggest one-day rise in two years. Laura Pitel
Dave Portnoy, stock market trader
Amateur stock traders had a blowout year in 2020, particularly in the US, where bored sports betters branched out into markets in droves. Leading the pack was Dave Portnoy.
With bravado, boisterous humour, a foul mouth and millions of social media followers, Mr Portnoy embodied a new generation of have-a-go traders, noisily and frequently reminding his fans that “stocks only go up”. From the end of March 2020, to the intense frustration of more cautious institutional fund managers, he was right.
Aside from a few niche bets, Mr Portnoy and his acolytes are simply too small a force to move global markets. But this vibrant community has ridden the wave in stocks up to new record highs, and shows no sign of backing down. Katie Martin
Key figure of 2021: Janet Yellen
If confirmed by the Senate as the next Treasury secretary early in 2021, Janet Yellen will become not only the first woman to hold the country’s top economic job but also the first person to have served at the helm of the Treasury, Federal Reserve and the Council of Economic Advisors.
She will assume the role at a pivotal moment for the US economy. The recovery has begun to stall, the Fed has stretched monetary policy close to its limit and the coronavirus crisis continues to rage on.
One focal point will be the fate of several lending facilities deployed jointly by the Treasury and Fed earlier this year. Outgoing Treasury secretary Steven Mnuchin refused to extend five programmes beyond their December 31 expiration date, despite pleas from investors. Mr Powell has also indicated his support to keep these facilities operational in case the volatility that roiled markets earlier this year returns.
Investors expect Ms Yellen to work closely with Mr Powell to try to overcome resistance and get these back online in short order. Colby Smith
China’s leaders focus on post-Covid economy at annual meeting
China’s National People’s Congress, the country’s annual rubber-stamp parliament session, will convene on Friday for a meeting set to focus on a problem many other countries wished they had: how to rein in an economy that has rebounded from the coronavirus pandemic.
“There have been intense discussions about monetary and fiscal policy,” said Wang Jun at the China Center for International Economic Exchange, a government think-tank in Beijing. “The primary goal is to stabilise leverage, but if policy [tightening] goes too far too quickly it may have a negative impact on financial markets as well as the real economy.”
The NPC will run for about a week and is typically a forum where previously agreed measures and policy objectives are formally approved. Last year’s session, however, was dominated by Chinese president Xi Jinping’s surprise announcement of a stringent national security law for Hong Kong after the city was rocked by anti-government protests in 2019.
The gathering also provides the biggest stage of the year for Xi to project his unchallenged grip on both the government and the Chinese Communist party as he prepares for an unprecedented third term in power in late 2022.
China’s post-Covid recovery contrasts starkly with the situation in the US, where the pandemic has claimed the lives of more than 500,000 Americans and President Joe Biden is pushing Congress to pass a $1.9tn economic stimulus package.
Guo Shuqing, one of China’s most powerful financial regulators, warned this week about the dangers of “extremely loose monetary policies” in the US and other pandemic-wracked economies, saying the measures could cause “too much fluctuation” in Chinese financial markets.
He added that China’s property market was still afflicted by “relatively large bubbles” and suggested lending rates would “rebound” this year. Guo, who heads the banking regulator and is also the most senior party official at China’s central bank, pronounced late last year that the real estate sector was the country’s “greatest grey rhino in terms of financial risk”.
Guo’s comments sparked a sell-off on regional markets, illustrating the difficult balance he and other financial officials must attempt to strike. Stimulus measures rolled out by Chinese president Xi Jinping’s administration early last year helped spur investment but also propelled debt levels in the world’s second-largest economy to about 270 per cent of GDP.
“While the leadership feels confident about the economy’s trajectory, there is still a lot of uncertainty,” said Andrew Polk at Trivium, a Beijing-based consultancy. “Authorities need to find a way to unleash consumption and pick up slack from industrial production and real estate investment.”
Shuang Ding, chief China economist at Standard Chartered in Hong Kong, said Beijing was likely to reduce its budget deficit to 3 per cent of GDP, down from 3.6 per cent last year. But he also forecast the Chinese economy would grow at least 6 per cent year on year, with “substantial room for outperformance”, and create 11m jobs.
“The most pressing economic issues are how to withdraw from last year’s expansionary fiscal policy and how to increase consumption,” said Jia Jinjing, an economics professor at Renmin University in Beijing. “The central deficit budget will be lower than last year but still above 3 per cent. We cannot rely too much on increased debt to spur consumption.”
NPC delegates will also formally pass the party’s 14th five-year economic plan, which is focused on achieving “self-reliance” in a number of critical technology sectors as well as ambitious environmental goals, including reaching peak carbon dioxide emissions by 2030 and net-zero emissions by 2060.
The NPC session in 2020 was delayed for almost three months by the pandemic and fixated on the imposition of the national security law on Hong Kong.
This year, it is likely to approve measures that will further reduce the pro-democracy camp’s representation in the city’s legislature. It is also expected to unveil rules consolidating Beijing’s hold on an already pro-establishment “election committee” that chooses Hong Kong’s chief executive.
Dozens of Hong Kong democracy activists, including publisher Jimmy Lai and jailed student leader Joshua Wong, have been charged with alleged offences of the security law. In a speech last month, Xia Baolong, head of the Chinese government office responsible for Hong Kong, singled out Lai and Wong as “extremely vile anti-China elements”.
“There doesn’t seem to be any end to the crackdown,” said Willy Lam, a China politics expert at the Chinese University of Hong Kong. “Xi has made up his mind to snuff out Hong Kong’s opposition movement altogether. For ordinary people, Beijing will insist on ‘patriotic education’ in the schools and media.”
A Chinese academic who advises Beijing on Hong Kong issues said the territory had been “too unbridled” prior to last year’s passage of the national security law. “The central government had no other option,” said the academic, who asked not to be identified. “The Hong Kong opposition overestimated its power.”
Additional reporting by Xinning Liu in Beijing
Sunak goes big and bold to try to repair the public finances
Chancellor Rishi Sunak’s Budget was big, bold and broke many longstanding records for the public finances.
At an estimated £355bn, the level of UK government borrowing forecast for 2020-21 is due to be the highest since the second world war, reflecting the severity of the coronavirus crisis. It highlights the sheer scale of emergency state support for companies and households during the Covid-19 pandemic.
The tax rises announced on Wednesday by the Conservative chancellor for the middle of the decade — affecting businesses and individuals — will be the largest since 1993. The increases will raise the UK tax burden to its highest level since Roy Jenkins was the Labour party chancellor in the late 1960s.
Justifying his approach, Sunak told the House of Commons: “Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”
As far as the public finances are concerned, the March 3 Budget will become known as a “give then take” affair that will reshape the relationship between the state and the private sector for many years ahead.
And the figures in the Budget documents confirm the coronavirus crisis has utterly transformed the public finances for the worse.
At the March 2020 Budget, when the UK had little clue about the enormity of the pandemic, the Office for Budget Responsibility thought the government would borrow £55bn in 2020-21.
Sunak, who unveiled a £12bn support plan for the economy in what was his first Budget, has since had to add huge amounts of public spending in 16 major announcements.
On Wednesday, he outlined another £40bn of support, bringing total spending to £344bn, according to the OBR: roughly 16 per cent of gross domestic product, and well above the average of 13.3 per cent among advanced economies.
It is this spending, alongside a loss of £90bn of expected tax revenues, that is set to raise the level of government borrowing to the highest level in peacetime.
In 2021-22, the government is still planning to spend £93bn on virus related support, mostly going to the NHS, but with large sums also for continued support for companies and households.
Karen Ward, strategist at JPMorgan Asset Management and a former adviser to Philip Hammond when he was chancellor, said Sunak was wise to keep splashing the cash in the next financial year. “The chancellor has rightly erred on the side of an extension that is potentially too long, rather than one that is too short,” she added.
With the colossal borrowing, underlying UK public debt, excluding temporary Bank of England schemes, is set to jump from a pre-pandemic forecast of 73 per cent of GDP by the middle of this decade to 97 per cent in the latest OBR prediction.
The 24 percentage point rise in the core debt burden is the second large jump in a little over a decade following the fiscal shock associated with the 2007-08 financial crisis. At about 100 per cent of GDP, UK public debt is now at its highest level since the early 1960s, when it was gradually coming down following the second world war.
This Budget was not just about fiscal support in 2021-22, but also stimulus to power the recovery, according to Richard Hughes, OBR chair. He said Sunak’s £25bn “super-deduction” in corporation tax would “stoke the recovery” and “encourage businesses to bring forward future investment into the next two years”.
But after 2021-22, the giveaways stop, and Sunak becomes the revenue raising chancellor, with very large increases planned in corporation and income taxes.
The moves risk damaging the UK’s international standing. In 2018, the OECD said the UK taxed corporate profits below the rich country average. Britain collected 2.6 per cent of national income through the levy, compared with the OECD average of 3.1 per cent.
By 2025-26, the OBR projections suggest UK corporate taxes will generate revenues above the OECD average, although Hughes said this level was “one [the UK] seldom sustained for very long in the postwar period”.
Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, said Sunak’s corporation tax rise was a significant risk. “For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high,” he added.
The tax rises will tackle the high level of borrowing, however, according to the OBR.
It projects the increases will lower the current budget deficit in 2025-26 from £37bn, had Sunak done nothing, to £1bn, almost balancing the government’s books excluding public investment. This is a core ambition of ministers.
Some economists thought Sunak should have been more explicit in setting new targets for the public finances.
Hande Kucuk, deputy director of the National Institute of Economic and Social Research, a research organisation, said the Budget needed “a comprehensive fiscal framework to build confidence in a sustained recovery given the significant uncertainty regarding the long-term effects of Covid-19 and Brexit”.
Other economists were more forgiving since there are huge uncertainties hanging over the public finances. The path of the pandemic is perhaps the largest, but Sunak also has to worry about the possibility of increased debt servicing bills if interest rates rise, and whether he can cut spending as he plans when the virus subsides.
Torsten Bell, director of the Resolution Foundation, another think-tank, was sceptical the chancellor would be able to reduce departmental spending.
The Budget documents showed a stealthy £4bn a year cut in spending alongside the tax rises. “He’ll end up spending more than that,” said Bell, adding this would add to pressure to proceed with additional tax rises.
But Sunak is an optimist, and hopes the uncertainty will go in his favour. If the economic recovery is sufficiently rapid, the chancellor will be looking to the OBR to cut its estimate of a 3 per cent long term hit to the economy from coronavirus.
And if that happens in a future Budget, Sunak can look forward to the possibility of tax cuts before the next general election.
A pivotal moment for Scotland’s independence champion
Nicola Sturgeon, Scotland’s first minister, has credited her former mentor and predecessor Alex Salmond with making her career.
Sturgeon’s appearance on Wednesday morning before a parliamentary inquiry into her Scottish National party government’s handling of harassment complaints against Salmond will be a potentially pivotal moment for her, and her dream of leading Scotland to independence from the UK.
At an extraordinary appearance before the parliament committee on Friday lasting almost six hours, Salmond accused Sturgeon’s closest associates of maliciously colluding to drive him from public life and his former protégée of breaching the ministerial code by intentionally misleading parliament — potentially a resignation matter.
Sturgeon denies the allegations. But the televised session must have made difficult viewing for the formerly shy working-class girl from Ayrshire in south-west Scotland who has, in recent years, helped bring her nation closer to independence than at any time since the 1707 union with England that created Great Britain.
When Sturgeon succeeded Salmond as first minister in 2014 — in the aftermath of a referendum in which Scottish voters backed staying in the union by 55-45 per cent — she was fulsome in praise of her predecessor. “Without the guidance and support that Alex has given me over more than 20 years, it is unlikely that I would be standing here,” she told the Scottish parliament.
But Salmond was hardly the first figure in the SNP to spot Sturgeon’s talent. Aged just 16, Sturgeon in 1987 timidly rang the bell of then SNP general election candidate Kay Ullrich to offer her support. Four years later Sturgeon was a veteran student campaigner and, according to biographer David Torrance, Ullrich was presciently describing her to party comrades as the future “first female leader of the SNP”.
Sturgeon, who describes her nationalism as more “utilitarian” than “existentialist”, has said her early interest in politics was driven by anger at the social cost and deindustrialising impact of the policies of late UK prime minister Margaret Thatcher and the powerlessness of Scottish voters to resist them.
After studying law at Glasgow university, she became a community lawyer and a rising SNP star. In 1999, she was elected to the new devolved Scottish parliament and by 2004 she was a contender for the party leadership. But she accepted the junior place on a joint ticket after Salmond, who had already led the SNP from 1990 to 2000, entered the race.
Robert Johns, politics professor at Essex university and author of a book on the SNP’s rise, said Sturgeon was a big factor in the party’s fortunes as deputy leader from 2004 and as deputy first minister of Scotland after it won power in Edinburgh in 2007.
“She’s got better and better at being seen as a normal human being and becoming likeable, while at the same time not losing that reputation for competence,” Johns said.
After playing a central role in the 2014 referendum, which the pro-independence Yes campaign lost by a much smaller margin than expected, Sturgeon took over an SNP energised rather than dispirited by defeat.
Today, the first minister enjoys approval ratings unmatched by any other UK party leader despite 14 years in government and a patchy record on key policies.
An international education survey in 2019 found Scotland’s progress in narrowing the attainment gap between advantaged and disadvantaged pupils had actually slowed since Sturgeon made the issue her top priority four years earlier. And the SNP’s reputation for governing competence has been dented by serious problems with construction and equipment at flagship hospitals in Edinburgh and Glasgow.
Sturgeon’s instinctive caution and mastery of detail — on display at near-daily televised briefings — appears to have served her well during the coronavirus pandemic. Most voters think she has handled the crisis better than UK prime minister Boris Johnson. While Covid-19 deaths in Scotland are high by international standards, they have been somewhat lower than in England.
But Sturgeon’s determination to keep a tight rein on the SNP and her reliance on a small inner circle of confidants, which includes her husband and SNP chief executive Peter Murrell, has fuelled discontent among some party colleagues. Formidable self-discipline was an ingredient in the once anarchic SNP’s rise, Johns said, but now the party felt “over-professionalised”. “It’s more top-down than it ever used to be,” he added.
Some in the SNP also believe that Sturgeon has been too cautious to take full advantage of a rise in support for independence since the UK in 2016 voted for Brexit despite 62 per cent of Scottish voters backing staying in the EU. Tensions in the party have also grown over her plans to make it easier for trans people to receive official recognition for the gender they identify as.
But it is the rift with Salmond that now threatens Sturgeon’s hopes for a renewed push for a second independence poll.
Relations between the two had already been tested by Salmond’s decision to host a chat show on Kremlin-backed Russian broadcaster RT when in 2018 two civil servants made formal complaints against the former first minister dating to his time of office.
In 2019, the Scottish government accepted that its investigation into the complaints had been “tainted by apparent bias”. At a criminal trial last year, Salmond was acquitted of all of the 13 sexual offences charges against him.
Salmond has accused Murrell and Sturgeon’s chief of staff Liz Lloyd of involvement in a “concerted” effort to damage his reputation “to the extent of having me imprisoned”. They deny the allegations.
Salmond has also accused Sturgeon of breaching the ministerial code by misleading parliament about when she learned of the complaints against him and by failing to report meetings between the two. And he says she has presided over a broad failure of “national leadership”.
They are charges that, if proven, could prove politically fatal, but Sturgeon — a formidable debater — says she is “relishing” the opportunity to set the record straight on Wednesday.
With crucial elections for the Scottish parliament just nine weeks away, her committee appearance could have a major impact on the UK’s constitutional debate, said Mark Diffley, a consultant on Scottish public opinion.
Polls suggest the SNP has been on course to go from minority to majority government, removing its need to rely on the pro-independence Scottish Greens for support on constitutional matters and providing a strong mandate to demand UK approval for a second referendum.
But securing a majority in the proportionally representative Scottish parliament is a difficult feat that would be made harder if Sturgeon was not seen to effectively rebut Salmond’s allegations, Diffley said. “She can, with a good performance, recover some of the damage,” he added. “It’s a huge deal for her — and she knows it.”
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