The weekly macro review for w/c 7 December 2020 – The roll-out of Covid-19 vaccines is helping to improve sentiment. But while prospects for the future are improving, there remains a more immediate/impending issue of the economic impact from the current outbreak as well as the general pace of recovery.
In the US, consumer sentiment recorded a surprising improvement – driven by sentiment around the longer-term outlook. Current prospects for the economy and household finances were unchanged. There were still expectations that in the immediate term unemployment would increase and incomes would decline, given the severity of the current outbreak.
In the week after Thanksgiving, US initial claims increased sharply. This is the first week where a notable increase has been recorded, especially during this latest outbreak of infections. It is not clear whether this is a shift in trend. From the Oct JOLTS and Nov non-farm payrolls data, we know that there were also large layoffs of temporary Census workers.
The JOLTS data for Oct showed a continued improvement in the net employment change for the month, but the annual net employment change was still a -5.65m decline in employment. While this was an improvement from the -6.2m decline in employment in Sep, these results are significantly below the average growth of +2.1m in employment recorded through 2019. Hires are now ahead of a year ago and layoffs and discharges are 5% below a year ago. Quits remain an insightful gauge. The level of quits is still 10% below a year ago – indicating either a lower willingness or ability of workers to change jobs. Job openings are also still 9% below a year ago, so the availability of jobs likely remains an issue.
The US CPI report was interesting this month. The pandemic has resulted in sharp shifts in spending patterns. Broadly, less air travel, less eating out, reduced discretionary spending, leaving densely populated areas (if possible), and more local/at home-based consumption. There are some small indications that severe price declines across categories such as apparel and airline fares are starting to reverse. This may be a small indication of returning demand, or at least, less deep discounting required.
The ECB announced additional support at the latest meeting. Rates remained unchanged, but pandemic-related QE was increased. The TLTRO III was also expanded for banks, and most of the other easing measures and emergency programs were extended indefinitely. It will be interesting to see the extent to which the US FOMC will respond this week to the current US situation.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The macro outlook for w/c 14 December 2020 – Key highlights for the week will be central bank meetings and a heavy data week.
This week, the FOMC meets and rates are expected to remain on hold. The Fed will consider the current economic impact of the virus, and while data has not materially deteriorated during this wave of infections, the rebound across some sectors is still weak. The ECB last week adjusted some policy settings and the FOMC could do the same. The BoE meets this week and will also consider the current economic impact of the recent restrictions as well as the upcoming Brexit transition deadline. The BoJ will also meet at the end of the week.
Key data points this week include:
The prelim PMI’s for Dec across the US, Europe, Japan, UK, and Australia. This will provide some insight into the severity of recent virus outbreaks and restrictions on services sectors especially.
Industrial production data will be released across Japan (Oct), the Eurozone, the US, and China for Nov.
US – initial weekly jobless claims will be important after last week’s increase, retail sales for Nov, and building permits and housing starts for Oct.
Australia – the latest RBA minutes and the employment and labour market survey for Nov will be released this week.
The US Fed purchases of Treasuries and MBS will remain elevated this week. There will be a notable increase in the purchase of Treasury securities this week of $31.2bn (up from $$22.4bn last week). The purchase of MBS will slow slightly but remains well above the $40bn/month rate. The Fed will purchase $27.9bn in MBS this week, up from $32.1bn last week.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $403bn in ST Bills, Notes, and Bonds this week, raising approx. $96bn in new money.
This week, approx. $17bn in Bills will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
