Happy New Year! The markets will get right back to work after the holidays. Remarkably, the three indexes together have managed to set 102 record closing highs last year amid unprecedented monetary and fiscal support, along with vaccines and therapeutics. However, there are renewed worries given the new virus strains and more stringent lockdowns. Trading could be constrained today ahead of the Georgia Senate runoff elections tomorrow that will determine control of the Senate and thus the legislative agenda.
The S&P 500 and US equities are currently consolidating and are still very bullish. However, the big mover last night/this morning was bitcoin which dropped below $28k but jumped back up to $31K. We believe that this could be some people taking their profits in Bitcoin and price correction, but more importantly, that the trend is still very bullish. The chart above shows the S&P 500 & Bitcoin which has soared to record highs in recent months. We continue to be overall very bullish on both the S&P 500 and Bitcoin.
A fairly quiet data calendar will see the release of the final December Markit manufacturing PMI. The flash reading dropped to 55.3 from 58.4 in November. However, it remained in expansion for a 5th straight month. Construction spending is expected to rise by 0.7% versus the previous 1.3% gain. Fedspeak returns, with Evans, Bostic, and Mester all on deck. Attention this week will be on Friday’s jobs report given the risk for a negative print.
Key Drivers for the Week of Jan 4
TIP – This is a 1 minute brief bullet-point summary as a tool that gives them a fast and simple list of what to watch for and talking points.
- 2021 begins with fundamentals back in view and key data ahead
- Politics an immediate focus with crucial Georgia runoff and Brexit adjustments
- U.S. calendar includes employment report, risk of negative print; ISMs due
- FOMC minutes and Fedspeak ahead with new voters Evans, Bostic, Daly, Barkin
- Canada employment expected to drop -30k, unemployment is seen at 8.6%, Ivey PMI
- Japan PMIs, auto sales, consumer confidence, PCE; China Caixin PMIs slated
- Brexit likely to see teething problems, especially with border controls
- Eurozone calendar: PMIs, ESI confidence, retail sales, CPI, jobless rate due
- German manufacturing orders, industrial production, trade, retail sales slated
- UK CPIS PMIs on manufacturing, services, construction, composite; lending data
Key Market Trends
Tip: Use this as a quick guide on the direction of key markets. I once had a client that would call me nearly every day asking the direction of the markets. This is a quick cheat sheet to know the trend and help understand what is happening with the markets.
|10 Year||0.932||1.45%||0.013||0.95||0.917||Strong Bull|
|US Dollar Index||89.551||−0.42%||−0.380||89.931||89.423||Bear|
S&P 500 Sectors
Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have out-performed others like unities. This is also a way to narrow the sectors to find investment opportunities.
|Sector Name||5-Day Return||1Month||6 Months||YTD Return||1YR vs S&P 500||3YR Return||Trend|
Week Ahead: Focus on the Data, But Politics Still in Play
On January 4, 2021
After last week’s focus on U.S. stimulus, Brexit, vaccine rollouts, virus worries, and lockdowns, attention will turn back to fundamentals with heavy data slates around the world. However, politics will still be an issue near term. On the immediate radar screen are the runoff elections in Georgia which will determine control of the Senate, which in turn will set the legislative agenda for Congress. And in the UK, it will be adjustment time after leaving the EU single market, with many Brexit details still to be worked out. Asia’s economic data should continue to reflect the strength of the recovery even at a slightly more moderate pace.
It’s back to work for U.S. markets, kicking off 2021 after the Dow and S&P 500 closed out 2020 at record highs. Combined, the major indexes posted 102 fresh peaks throughout the year. Concurrently, yields richened in the few weeks leading up to year-end after the 10-year and 30-year rates failed to eclipse 1% and 1.75% levels, respectively. There are a number of key economic reports on tap this week, including ISMs and vehicle sales, though culminating with the December employment data (Friday). The Fed is back in focus too with the FOMC minutes (Wednesday) and Fedspeak due.
The December jobs report should garner extra attention given the non-trivial risk of a drop in payrolls as restrictions ratcheted up on the spikes in virus infections since November and the delayed stimulus. Of course, the service sector again suffered the brunt of the restrictions, but that sector has already been hollowed by the spring shutdowns, so weakness may be tempered. Hence, we expect a 100k December nonfarm payroll increase, after gains of 245k in November, 610k in October, and 711k in September. We’d also note that initial claims are not flashing warning signs about employment in December — claims fell -19k to 787k in the Christmas week, extending the -86k plunge to 806k (was 803k) in the prior week. The jobless rate should tick up to 6.8% from 6.7% in November, versus a 14.7% peak in April. Average hourly earnings should increase 0.2%.
Meanwhile, ISMs are likely to reflect some slowing in activity, although producer sentiment has remained surprisingly firm as businesses have scrambled to rebuild inventories. The manufacturing index (Tuesday) is expected to fall to 56.0 in December after falling -1.8 points to 57.5 in November. And it’s down from a 2-year high of 59.3 in October. The ISM-NMI index (Thursday) should decline to 55.0 after slipping -0.7 ticks to 55.9 in November. The 58.1 in July was the highest since February 2019.
Fed policy will be on view again after the holiday hiatus. The FOMC releases the minutes to its December 15-16 meeting. The policy result was uneventful as the 0% to 0.25% rate band was maintained, and there were no changes to QE. However, the minutes will be scrutinized for insights into the general thinking of policymakers. Note there is a new voting rotation this year, and the new crew of Evans, Bostic, and Daly will tilt to the dovish side, with just Barkin more of a centrist. And Fedspeak this week will include the aforementioned doves. Also on tap are Williams, Mester, Harker, Bullard, and VC Clarida.
The earnings slate is empty on Monday, Tuesday, and Wednesday. Thursday brings Micron Technology, Constellation Brands, Walgreens Boots, ConAgra, and Lamb Weston. Friday has an earnings report from Infosys.
The flow of economic data resumes in Canada this week — employment (Friday) is the focus, with a -30k drop expected in December after the 62.1k gain in November. Lockdown measures intensified during the month of December as infections ramped higher, which drives our expectation for a net drop in total employment during the month. The unemployment rate is seen rising to 8.6% from 8.5% in November. The trade deficit (Thursday) is projected to narrow to -C$3.5 bln in November from -C$3.8 bln in October. The Ivey PMI for December is due Thursday while the industrial product price index is scheduled for Tuesday. There is nothing from the BoC this week. The BoC’s next meeting is on January 20. No change is expected to the 0.25% rate setting until 2023.
Several important releases highlight the region’s calendar as the new year begins. Japan returns from holiday and will report December manufacturing and services PMIs, December consumer confidence, and November consumption figures. In China, the December Caixin/Markit manufacturing and services PMIs are on tap. Elsewhere, retail sales, trade, and price data are slated. There are no central bank meetings scheduled.
Japan’s final December manufacturing PMI (Monday) is expected to hold unchanged at the 49.7 print for the flash reading, up from 49.0 in November. It has not been above the 50 expansion/constriction line since April 2019. It was at 48.4 last December. Auto sales for December are also due Monday. December consumer confidence (Wednesday) should dip to 32.5 from 33.7. The index ranged from 21.6 to 29.5 over the April-September period before improving to the 30s handle since. The December services PMI also is due Wednesday. It inched up 0.1 tick to 47.8 in November, which was the best since January. It was at 49.4 a year ago. But it’s been in contraction (below 50) for 10 straight months. November PCE (Friday) is penciled in falling to a -1./5% y/y contraction rate after briefly posting a 1.9% y/y rise, which was the first positive rate of growth since September 2019. China’s Caixin/Markit December manufacturing PMI (Monday) likely dipped to 54.8 following the 1.3 point increase to 54.9 in November, which was the highest since November 2010. The index was at 51.5 a year ago. The December services PMI (Wednesday) should improve to 58.1 after rising 1 point to 57.8 previously. It was at 52.5 last December. The data continue to underscore the strength of China’s post-pandemic recovery.
Hong Kong November retail sales (Monday) are forecast to have contracted at a -7.0% y/y rate on a value basis, slowing a bit versus the prior -8.8% clip; and it would be a 22nd straight month in negative territory. On a volume basis, sales are seen decelerating to a -7.5% y/y clip from -9.3% previously, though this component has also been contracting since January 2019. Philippines December CPI (Monday) is expected at an unchanged 3.3% y/y pace. The November trade report is due Wednesday. Singapore’s Q4 advance GDP (Monday) is forecast at -5.0% y/y versus -5.8% in Q3. December PMI is due Monday, while November retail sales are released on Tuesday and are expected at a -8.1% y/y contraction rate from -8.6%. Thailand December CPI (Tuesday) should remain steady at -0.4% y/y. Taiwan December CPI (Thursday) is estimated at an unchanged 0.1% y/y. December exports (Friday) should slow to a 1.0% y/y clip from 12.0% in November. South Korea November current account figures will be released Friday.
In Australia, the trade report (Thursday) highlights a lean data docket. We expect the trade surplus to narrow to A$7.0 bln in November from A$7.5 bln in October. Building approvals (Thursday) are projected at a 2.0% gain in November after the 3.8% rise in October. There is nothing from the RBA until the policy meeting on February 2. In December, RBA Governor Lowe said early this month that the RBA doesn’t expect to lift the cash rate for at least three years.
New Zealand’s calendar is empty of market-moving data this week. The RBNZ does not meet again until February 24 of 2021. No change to the 0.25% rate setting is anticipated for quite some time. Markets are closed in both nations on Monday and Friday.
Eurozone: many will be more than glad to leave 2020 behind. But while more vaccines are approved and vaccinations continue, the current virus situation in many areas remains grim, which means social restrictions will continue to be a major drag on overall activity in Q1. Brexit day is also finally here and that will likely mean teething problems at the border as non-tariff trade barriers will go up and new controls will lengthen the time each lorry has to spend at the border. Still, there is some light at the end of the tunnel, even if the services sector continues to struggle, as ongoing government and central bank support will remain crucial to the recovery.
After two holiday-shortened weeks, the data calendar is jammed packed in the first week of the year although the deluge of reports is unlikely to change the overall outlook. Eurozone confidence was supported by vaccine developments since November and the final readings for the December PMIs are likely to confirm the manufacturing PMI (Monday) at 55.5, the Services PMI (Wednesday) at 47.3, and the composite at 49.8 (median same). The services sector is still feeling the pain from social distancing measures, but the overall reading is now suggesting stagnation rather than contraction, which is encouraging. Similarly, Eurozone ESI Economic Confidence is expected to lift to 89.0 in December reading from 87.6 in the previous month.
However, despite the positive confidence numbers, the real sector has been hit by the renewed restrictions and the closure of restaurants, bars, and non-essential shops in many countries. Against that background, the German sa jobless number is expected to rise 15K in the December reading, which would increase the sa jobless rate to 6.2% (median same) from 6.1% in the previous month. The overall Eurozone rate is more backward-looking but also expected to rise to 8.5% (median same) in the November reading from 8.4% in October.
Inflation has started to lift off from lows but still remains in negative territory, partly due to the temporary cut to the German VAT rate and base effects from oil prices, but also as a reflection of weak demand. German HICP inflation (Wednesday) is expected to rise to -0.2% y/y in the December reading, from -0.3% y/y in November and the Eurozone CPI estimate (Thursday) is also likely to come in at -0.2% y/y, up from -0.3% y/y in November.
The rest of the calendar is largely too backward-looking to impact the overall outlook. German manufacturing orders (Thursday) are expected to correct -1.0% m/m in the November reading after a strong rise in October. The latter should have helped to underpin production that month and we see German industrial production (Friday) up a modest 0.3% m/m October’s 3.2% jump. The ongoing recovery in major export countries is still helping to support the manufacturing sector and should also keep German trade data (Friday) underpinned. November data on German retail sales, French consumer spending, and Eurozone retail sales (Thursday) are also due, as is Eurozone M3 money supply growth.
U.K.: a Brexit deal materialized on Christmas eve, and was ratified the UK parliament and unanimously approved by all 27 EU ambassadors. The deal took effect on January 1, and in the eurozone is operating on a provisional basis until the EU parliament members have formally ratified it.
The UK has left the EU’s common market and customs union, and freedom of movement has ended. The new relationship will be governed by the “Trade and Cooperation Agreement,” which will provide tariff and quota-free trading of goods between the EU and UK. With regard to fishing rights, the EU will give up 25% of its existing quotas in UK waters over a five-and-a-half-year transition, after which there will be annual renegotiations. EU law will cease to apply in the UK, and the jurisdiction of the European Court of Justice will end.
The biggest hurdles to a deal being reached were the level playing field rules and state aid issues, which were overcome with the principal of “managed divergence”, which gives both sides the right to a judicial review and possible retaliation if they believe the other side has gained an unfair competitive advantage.
Overall, the major red lines of both sides have been respected. The EU’s “four freedoms” — the free movement of goods, services, capital and people — have been preserved, while a hard border on the island of Ireland has been avoided. From the UK’s perspective, a free trade agreement on goods has been achieved, full sovereignty in setting laws has been returned, a digestible compromise was found on fishing rights, while the “managed divergence” pathway, rather than the Brussels favored “dynamic alignment” path, proved to be crucial in avoiding a no-deal scenario.
Ahead, there are many challenges, but also opportunities for the UK. Trading frictions (aka nontariff barriers) will rise, while the UK’s service sector will face major long-term challenges. Regarding financial services, which is a crucial generator of tax revenue in the UK, the EU’s system of equivalence — which grant market access to foreign banks, insurers, and other financial firms if their rules and standards are deemed by Brussels to be sufficiently close to EU rules — should maintain London’s dominance in this area, at least for now. Financial centers on continental Europe lack the critical mass to compete with London in many areas. Over time, this is sure to change, though the UK government is aiming to offset this by attracting greater business from other parts of the world, such as in tech finance. The EU and UK relationship will be an evolving one, and there will be lots of tweaks to the agreement in the months and years ahead.
We are moderately bullish on the pound from here. Brexit uncertainty has finally come to an end, which will unleash a process of business adaptation and pent-up investment. Aside from the deal with the EU, the UK has now signed up to 62 trading agreements around the world. The latest addition was a deal with Turkey, which was finalized last week. Deals with Albania, Cameroon, and Ghana are also in the pipeline, and, further out, a deal with the U.S. is to be expected. Most of the deals so far are continuity agreements, which replicate terms that existed under EU agreements, and will be open to expand over time. The UK currency will potentially be an outperformer in the 2021 recovery trade, which hinges on successful vaccination programs bringing an end to the lockdown era, as the UK economy underperformed G20 peers during the 2020 lockdowns and restrictions (although this picture was at least partly exacerbated by the way the UK compiles GDP data). UK equities are cheap compared with global peers, especially U.S. stocks.
The UK data calendar this week is highlighted by the final releases of the December PMI surveys. The preliminary composite PMI posted a two-month high of 50.7 in the headline reading, which we expect to be unrevised, having risen from 49.0 in the prior month and signaling a return to expansion in the UK’s private sector. A particularly strong performance was seen in manufacturing, a sector that has remained open despite the Covid restrictions, and where activity has been boosted by a temporary boost to purchasing ahead of the December-31 Brexit deadline. The services sector has been particularly impacted by the Covid restrictions, which have been most heavily felt by the hospitality, high street retail and public transport sub-sectors. The surveys highlighted a sharp rise in input prices, led by the steepest rise in input price inflation in the manufacturing sector in two-and-a-half-years, according to Markit, due to stretched supply chains and rising commodity prices. Business optimism for the 12-month outlook remained upbeat, although slightly off November highs, hinged on the presumption that Covid vaccination programs will successfully restore the domestic and world economies to something approaching normality.
Switzerland: The Swiss data calendar features the December manufacturing PMI report, along with December CPI, December unemployment data, and November retail sales figures. Headline CPI is expected at -0.7%, unchanged from November.
Stocks & ETF Watch List
Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated weekly to help provide our readers with timely insights.
This group of stock/ETF picks is likely to experience growth and perform well into the near future. The rank score of a stock, where a score of 1 is best. This algorithm compares a company to its peers and considers the consistency of key return metrics. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.
|Ticker||Rank||Company||Dividend||Beta 1 YR||1YR vs S&P 500||3YR vs S&P 500||3R vs Sector||Overall Score|
|BAH||15||Booz Allen Hamilton||1.40%||0.68||6.00%||91.00%||114.00%||77|
|TMO||16||Thermo Fisher Scientific||0.20%||0.73||25.30%||98.70%||95.10%||89|
|BR||26||Broadridge Financial Soln||1.50%||0.8||7.80%||29.20%||-44.50%||94|
|WPM||27||Wheaton Precious Metals||1.20%||0.38||23.40%||48.60%||75.50%||60|
Income Stock & ETFs Picks
This list of stocks and ETFs are selected for their ability to pay dividends. The dividend score of a stock, where a score of 99 is best. This algorithm compares a company to its peers and considers the consistency of key dividend metrics as well as their direction of change. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.
|Ticker||Company||Dividend||Beta 1YR||1YR vs S&P||3YR vs S&P||3YR vs Sector||Dividends Score||Overall Score|
|BIP||Brookfield Infr Partners||3.90%||1.24||-3.60%||-6.60%||12.60%||17||20|
|DD||DuPont de Nemours||1.70%||1.17||-5.20%||-71.10%||-44.20%||19||16|
|FRT||Federal Realty Investment||5.00%||1.2||-49.10%||-76.90%||-43.80%||36||77|
|JNJ||Johnson & Johnson||2.60%||0.68||-7.60%||-26.40%||-30.00%||78||66|
|NFG||National Fuel Gas||4.30%||0.76||-26.00%||-64.90%||25.10%||43||51|
|PG||Procter & Gamble||2.30%||0.71||-4.30%||16.50%||36.30%||83||64|
|SWK||Stanley Black & Decker||1.60%||1.46||-8.70%||-37.30%||-14.30%||82||82|
Dogs of the Dow
This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. The dividend score of a stock, where a score of 99 is best. This algorithm compares a company to its peers and considers the consistency of key dividend metrics as well as their direction of change. The overall score, which 99 is the best) is computed from the percentile rank of valuation, growth, financial strength, efficiency, momentum, and dividends. The score also considers the past performance of a stock in each of the component areas relative to peers.
|Ticker||Company||Dividend||Beta 1YR||1YR vs S&P||3YR vs S&P||3YR vs Sector||Dividends Score||Overall Score|
|WBA||Walgreens Boots Alliance||4.70%||0.81||-47.80%||-88.10%||-91.60%||91||75|
Economic Data Calendar
We have a heavy data docket in the first week of 2021 that includes the December jobs report, where we expect pandemic headwinds and clumsy seasonal factors to leave a lean 100k payroll rise and a jobless rate increase to 6.8% from 6.7%. We expect November gains for construction spending and factory orders, while the trade deficit widens sharply. We expect a small wholesale inventory contraction and a lean gain for sales that lowers the I/S ratio, alongside modest December pull-backs for the ISM and ISM-NMI.
Week of January 4
Yesterday’s advance indicators report revealed a more rapid Q4 import climb and slower Q4 inventory accumulation pace than we had assumed, which prompted a mark-down in our Q4 GDP estimate to a still-solid 4.3% from 5.5%. This undershoots joined the prior week’s ugly personal income report, which revealed a big Q4 pull-back in income subsidies and a weak round of consumer spending data. The second stimulus package should fill the void created by declining CARES Act subsidies, and the additional spending into January should more than offset the likely December sales pull-back with new coronavirus restrictions that likely capped typical seasonal spending on restaurants and travel. Last weekend’s fears of a stimulus package veto were capped before the Monday market open, and direct payments to families began before the end of December, as had been expected.
Our forecasts for December and Q1 now assume direct payments to individuals of $20 bln in December, $140 bln in January, and $5 bln in February, though we are only guessing how many of the direct deposits will actually occur by today. We expect additional unemployment insurance benefits of $120 bln spread between the start of January and the middle of March. The $325 bln in new PPP loans are more targeted than the 2020 distributions, give a requirement to show revenue losses, and most of these loans will probably be extended in January. These three components of the stimulus bill will distribute about $500 bln to the public within a month, and most of the rest soon after. The savings rate is now expected to rise from 12.9% in November to the 14% area in December and the 22% area in January, before a resumed drop-back that should bring the rate down to the 11% area by mid-2021.
Beyond the above direct distributions to households, the legislation extends the eviction moratorium to the end of January and includes funds for vaccine distribution, food programs, and other benefits, all of which will support the macroeconomic reports scheduled for release through Q1, with much of this spending in January.
Construction Spending: 0.7%
Construction spending is expected to rise by 0.7% in November after a 1.3% October increase. We expect a 2.3% private residential construction increase after a 2.9% October rise, a -0.7% decline for public construction after a 1.0% October increase, and a -0.6% private nonresidential drop after a -0.7% October decrease. We expect construction spending to grow at an 9.7% pace in Q4, below the 10.6% Q3 pace, following a -15.2% Q2 contraction rate, but a firm 11.2% growth pace in Q1. Construction hours-worked from the jobs report rose 0.6%, in November, and construction jobs rose 27k. The building material sales component of retail sales rose by 1.1% in November. We saw a solid round of November housing starts data, with new 14-year highs for both housing permits and starts under construction. All the housing measures have rebounded sharply since Q2, and this should translate to a lagged construction spending climb into 2021.
The ISM index is expected to fall to 56.0 in December from 57.5 in November and a 2-year high of 59.3 in October, versus an 11-year low of 41.5 in April, a 14-year high of 60.8 in August of 2018, and a low from the last recession of 34.5 in December of 2008. The all-time low for the measure is 30.3 in June of 1980. The ISM-NMI index should fall to 55.0 from 55.9 in November, versus a 17-month high of 58.1 in July, an 11-year low of 41.8 in April, a 13-year high of 61.2 in September of 2018, and an all-time low of 37.8 in November of 2008. Producer sentiment has remained firm despite a November moderation, as businesses scramble to rebuild inventories despite headwinds from the delayed stimulus and new coronavirus restrictions since mid-November.
Factory Orders: 0.5%
Factory orders are expected to rise 0.5% in November, with a 0.3% ex-transportation increase. Shipments should rise by 0.2%, while inventories grow by 0.7%. The forecasts reflect a 0.9% durable goods orders rise with a 0.4% ex-transportation rise and a 1.9% transportation increase. The factory goods I/S ratio should be steady from 1.41 in September, which is near the 1.40 pre-pandemic readings over the four months ending in February, versus an all-time high of 1.70 in April, and a prior all-time high of 1.66 at the start of the series in January of 1992. The durable goods I/S ratio rose to 1.71 in November from a 1-year low of 1.70, versus an all-time high of 2.24 in April, and a prior all-time high of 2.05 in January of 1992. We expect gains in factory orders, shipments and inventories going forward as companies continue to try to rebuild inventories.
Trade Deficit: -$67.2 bln
The trade deficit is expected to widen in November to a 14-year high of $67.2 bln from $63.1 bln in October, versus a 12-year high of -$64.9 bln in August. We expect exports to grow 0.7% to $183.2 bln, while imports grow 2.2% to $250.4 bln. The trade deficit should average -$65.9 bln in Q4 after gaps of -$59.5 bln in Q3, -$55.0 bln in Q2 and -$39.7 bln in Q1. For the year, we expect a -$55.9 bln average deficit, versus a -$48.1 bln average in 2019. A November petroleum price rebound likely boosted both exports and imports of petroleum. We saw November pull-backs in vehicle trade after huge increases in every month since June, but large declines in each prior month since February. We expect a sustained high November bilateral goods deficit between the U.S. and China of about -$30 bln as businesses rebuilt inventories. The bilateral gap previously posted a pull-back between mid-2019 and March to an -$11.8 bln March deficit that marked the smallest gap since 2004. We saw a -$43.1 bln all-time wide bilateral gap in October of 2018.
Initial Jobless Claims: 780k
Initial jobless claims for the week of January 2 should remain elevated, though we assume a -7k down-tick in the weekly pace to 780k, after a -19k drop to 787k from 806k. Seasonal adjustment for initial claims was switched to being additive from multiplicative in September, and the usual seasonal rise in NSA claims through the holidays may be lifting the reported SA data with the new seasonal factors given the unusually high level of claims. We are likely also seeing a lift from expanding coronavirus restrictions. Claims are expected to average 835k in December, following averages of 749k in November, 786k in October, and 855k in September. The 892k December BLS survey week reading exceeded recent survey week readings of 748k in November, 797k in October, and 866k in September. We assume a 100k December payroll rise, after gains of 245k in November, 610k in October, and 711k in September.
Continuing claims fell by -103k to 5,219k in the week of December 19, following a downward revision in the prior week’s reading that left a 5,322k figure. We expect continuing claims to fall -119k to the 5,100k area for the week ending on December 26. Though rising coronavirus restrictions are likely prompting some stalling in the continuing claims downtrend, we expect resumed bigger declines into early-2021. Continuing claims fell by -767k between the November and December BLS survey weeks. We saw much larger prior declines of -1,734k in November, a hefty -4,924k in October BLS, -1,745k in September, -2,459k in August, -2,280k in July, and -1,610k in June.
We expect a 100k December nonfarm payroll increase, after gains of 245k in November, 610k in October, and 711k in September. We assume a 20k factory jobs increase in December, after a 27k November rise. The jobless rate should tick up to 6.8% from 6.7% in November, versus a 14.7% peak in April. Hours-worked are assumed to grow 0.1% after a 0.3% November gain, with the workweek is steady at a 20-year high of 34.8 for a fourth consecutive month, from 34.7 in August. Average hourly earnings are assumed to rise 0.2% in December, with a headwind from further unwinds of the April distortion from the concentration of layoffs in low-wage categories slows. This translates to a y/y gain of 4.4%, steady from October. We previously saw a 3.5% expansion-high pace for y/y wage gains in both February and July of 2019, before the pandemic-boost in March and April. We expect the payroll rebound to continue through year-end, though the climb is leaving a net drop for employment for 2020 overall.
Wholesale Inventories: -0.1%
Wholesale inventories are expected to fall -0.1% in November after a 1.2% (was 1.1%) October increase, as revealed in the advance indicators report. Sales are estimated to rise 0.3%, after a 1.8% October climb. The I/S ratio should dip to 1.30 from 1.31 in October, versus an all-time high of 1.68 in April, as the ratio fluctuates around the pre-pandemic reading of 1.31 in January and February, and well below the prior all-time high of 1.41 in January of 2009 for a data set extending back to 1992. Business inventories should rise 0.4% in November, with other component gains of 0.7% for factories and 0.7% for retailers. The inventory and sales data were restrained by lean energy prices through November, before big December gains. Wholesale inventories faced Q2 headwinds from a plunge in imports that is now being reversed. We’re seeing solid wholesale sector gains with the recovery in imports from China, following a pullback in imports from China between mid-2019 and March of 2020. International trade is disproportionately captured at the wholesale level of production.
|DATE||ET||LOCALE||INDICATOR – EVENT||FOR||FORECAST||MEDIAN||LAST|
|04 Jan||09:45||United States||Markit PMI – Manufacturing||DEC||56.5|
|04 Jan||10:00||Chicago||Fed’s Evans speaks on AEA panel|
|04 Jan||10:00||United States||Construction Spending||NOV||0.7%||1.1%||1.3%|
|04 Jan||12:15||Cleveland||Fed’s Mester speaks as discussant in AEA papers seminar|
|04 Jan||18:00||Cleveland||Fed’s Mester speaks on economic outlook|
|05 Jan||08:55||United States||Redbook 01/02||0.4%|
|05 Jan||10:00||United States||ISM (Mfg)||DEC||56.0||56.5||57.5|
|05 Jan||10:00||United States||ISM (Mfg) – Prices||DEC||66.5||65.4|
|05 Jan||United States||Domestic Auto Sales||DEC||2.9M||2.9M||2.9M|
|05 Jan||United States||Domestic Light Truck Sales||DEC||9.6M||9.4M||9.1M|
|05 Jan||15:45||Chicago||Fed’s Evans discusses Fed actions|
|05 Jan||15:45||New York||Fed’s Williams chairs AEA panel on monetary-fiscal nexus|
|06 Jan||07:00||United States||MBA Mortgage Applications 01/01|
|06 Jan||08:15||United States||ADP Employment Survey||DEC||150K||122K||307K|
|06 Jan||09:45||United States||Markit PMI – Services||DEC||55.3|
|06 Jan||10:00||United States||Factory Orders||NOV||0.5%||0.8%||1.0%|
|06 Jan||10:00||United States||Factory Inventories||NOV||0.7%||0.2%|
|06 Jan||10:30||United States||EIA Crude Oil Stocks 01/01||-6.1M|
|06 Jan||10:30||United States||EIA Gasoline Stocks 01/01||-1.2M|
|06 Jan||10:30||United States||EIA Distillate Stocks 01/01||3.1M|
|06 Jan||14:00||Washington||FOMC Minutes for Dec 15-16 Meeting|
|07 Jan||07:30||United States||Challenger Layoffs||DEC||64.8K|
|07 Jan||08:30||United States||Trade: Goods & Services||NOV||-$67.2B||-$65.2B||-$63.1B|
|07 Jan||08:30||United States||Goods & Services Exports (BOP)||NOV||$183.2B||$183.5B||$182.0B|
|07 Jan||08:30||United States||Goods & Services Imports (BOP)||NOV||$250.4B||$250.9B||$245.1B|
|07 Jan||08:30||United States||Initial Claims 01/02||780K||772K||787K|
|07 Jan||08:30||United States||Continuing Jobless Claims 12/26||5,100K||5,219K|
|07 Jan||09:45||United States||Bloomberg Consumer Comfort Index 01/03||44.6|
|07 Jan||10:00||United States||ISM-NMI||DEC||55.0||54.5||55.9|
|07 Jan||10:00||United States||ISM-NMI – Prices||DEC||66.5||66.1|
|07 Jan||10:30||United States||EIA Natural Gas Stocks 01/01||-114B|
|07 Jan||11:00||United States||Treasury Announces 10-Yr Notes Reopen|
|07 Jan||11:00||United States||Treasury Announces 30-Yr Bonds Reopen|
|07 Jan||11:00||United States||Treasury Announces 3-Year Notes|
|07 Jan||12:00||St Louis||Fed’s Bullard discusses monetary policy and the economy|
|07 Jan||13:00||Wisconsin||Fed’s Evans speaks at Wisconsin Bankers Association meeting|
|07 Jan||16:30||United States||M2 – Week Ended 12/28||$102.0B|
|08 Jan||08:30||United States||Nonfarm Payrolls||DEC||100K||66K||245K|
|08 Jan||08:30||United States||Private Nonfarm Payrolls||DEC||130K||76K||344K|
|08 Jan||08:30||United States||Manufacturing Payrolls||DEC||20K||17K||27K|
|08 Jan||08:30||United States||Hourly Earnings||DEC||0.2%||0.2%||0.3%|
|08 Jan||08:30||United States||Average Workweek||DEC||34.8||34.8||34.8|
|08 Jan||08:30||United States||Unemployment Rate||DEC||6.8%||6.7%||6.7%|
|08 Jan||10:00||United States||Wholesale Inventories||NOV||-0.1%||1.1%|
|08 Jan||10:00||United States||Wholesale Sales||NOV||0.3%||0.6%||1.8%|
|08 Jan||11:00||Washington||Fed VC Clarida speaks on monetary policy and the economy|
|08 Jan||15:00||United States||Consumer Credit||NOV||$12.0B||$9.0B||$7.2B|