Report (Premium Edition) 01-19-2020

The markets will reopen following Monday’s MLK Jr. Day holiday. U.S. equity futures edged higher in quiet Monday trading, alongside gains in most European bourses, led by the DAX’s 0.44% rally on expectations of positive corporate earnings results and decent guidance with announcements to being in earnest this week. The FTSE bucked the bullish trend and closed with a -0.22% decline on a stronger pound, along with ongoing Covid and Brexit woes. Asian markets were mixed with Chinese shares climbing 0.84% to 1.1%, supported by a stronger than expected GDP number, while the rest of the region was in the red. EGB were mostly weaker, rising just over 1 bps, while the JGBs cheapened 1.5 bps too.

We believe investors should pay special attention to the 10-year yields.  The yield is currently rising on inflation fears which is the opposite of what the Fed has been saying. The chart above is the 10-year yield versus the S&P 500.  Our opinion is that bond traders are pricing in a jump in inflation which will occur as a result of increased government spending.  Biden has picked Janet Yellen as his chief economical advisor who has a leaning toward a “balanced budget” for the government approach in her writings but is very open to increased spending short term.  What this potentially means to investors is that we could the Fed try to keep rates low, while the market increases rates.  Interest-sensitive sectors like utilities (which often carry a lot of debt), bonds, and bond funds are at risk of getting hard if the market turns against them. The good news is we think it is unlikely to happen until 2022 if not 2024.

Attention this week will be on Wednesday’s inauguration of Joe Biden. He announced a $1.9 tln stimulus package last week, though it’s questionable whether it will pass Congress intact. Meanwhile, he’s expected to quickly issue a number of Executive Orders, including rejoining the Paris Accord. Earnings will highlight the calendar amid a thin offering of data. Slated are Bank of America, Netflix, Goldman Sachs, UBS, State Street, Haliburton, and J.B. Hunt are due Tuesday. The economic docket includes just the November TIC report on international capital flows. Over the rest of the week, there are housing starts, the Philly Fed index, jobless claims, and existing home sales.

Key Drivers for the Week of January 18th

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.

• Joe Biden to be inaugurated as 46th President of the United States
• Global outlooks still revolve on virus, lockdowns, vaccines, stimulus, growth, inflation
• Central banks in focus: ECB, BoJ, BoC, Bank Negra meet but no policy changes seen
• U.S. closed Monday; data on claims, Philly Fed, housing starts, existing-home sales
• Canada reports CPI, retail sales, manufacturing/wholesale shipments, housing starts
• China: GDP, production, retail sales, fixed investment; Japan production, trade, CPI
• Eurozone data on manufacturing PMI, HICP, German ZEW investor sentiment
• Brexit adjustments continue, but pent-up UK business investment could be unleased
• UK data includes inflation, retail sales, manufacturing, and services PMIs

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.

S&P 5003768.26−0.72%−27.293788.733749.62Bull
Crude (WTI)52.430.70%0.36352.7652.067Bull
10 Year1.1071.89%0.0211.1191.089Bull
US Dollar Index90.448-0.35%-0.31790.76290.425Bear
REIT Index2087.991.21%25.042092.812052.26Bull

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 Name5-Day Return1Month 6 MonthsYTD Return1YR vs S&P 5003YR ReturnTrend
 Basic Materials-1.70%4.90%26.70%4.10%9.80%22.20%Bull
 Communication Services-1.60%-1.20%20.00%-2.10%4.60%36.30%Bear
 Consumer Cyclical0.50%4.90%36.70%3.90%35.20%81.50%Bull
 Consumer Defensive-0.90%-1.90%9.90%-2.30%-8.20%24.90%Bear
 Financial Services-0.20%8.80%31.80%5.00%-13.40%11.90%Bull
 Real Estate3.20%1.20%10.10%-0.40%-22.20%22.00%Bull

Week Ahead: Transition of Power

On January 18, 2021

The markets will pay close attention to the transition of power in Washington as Joe Biden takes over as president on Wednesday. He will have a strong policy hand since the Democrats took control of all three branches of government. However, the small Democrat majorities may limit the extent of stimulus, tax hikes, and the more radical aspects of the agenda. Global stocks have rallied over the first two weeks of 2021 despite the rampaging virus, thanks to vaccine rollouts and as pro-growth U.S. fiscal policy is expected to spillover to the rest of the world. Meanwhile, inflation angst has gripped the fixed income markets assuming a global recovery and a surging debt load. However, the rise in rates has been orderly, while the dovish leanings of the Fed, ECB, and BoJ should cap yields. The ECB meeting is the focus in Europe — President Lagarde is unlikely to top up the existing policy after PEPP and TLTRO programs were strengthened in December. In Asia, the BoJ is is widely expected to maintain its current policy settings and China’s GDP is expected to accelerate. Inflation data highlight around the region.


U.S. markets are closed Monday for MLK Day. Attention will be squarely on the inauguration of Joe Biden (Wednesday) who becomes the 46th president. There are a couple of important economic releases though none of the data will alter current outlooks. Initial claims (Thursday) are of considerable interest after the unexpected 181k surge (the biggest since the massive increases seen in last March) to 965k in the week ended January 9. The renewed lockdowns amid the increases in virus cases, along with a likely jump in applications after passage of the Christmas stimulus package, as well as the usual volatility around the holidays, all impacted. We’re projecting a -165k drop to 800k for the January 16 week but with risks of a smaller decline given the lockdowns and the potential for increased filings due to the Christmas stimulus package that renewed unemployment benefits. The data will also see additional scrutiny since it coincides with the BLS survey week. The Philly Fed index (Thursday) is seen rebounding to 13.0 in January after dropping -15.2 points to 11.1 in December. This would be an 8th straight month in expansion. Indeed, these diffusion indexes should remain elevated as factory activity continues to ramp up to restock lean inventories in the face of rebounding demand, especially with the second round of stimulus and the rollout of vaccines.

The housing sector has been a star performer of the pandemic economy, and the latest batch of data this week should show that housing’s hot streak was sustained in December. Housing starts (Thursday) are seen improving to a 1.560 mln unit rate in December from 1.547 in November. This would be a 7th monthly increase in the past 8 months. Existing home sales (Friday) are pegged rising 0.4% to 6.720 mln in December from 6.690 mln in November. The increase in restrictions during December as virus infections spiked is a modest downside risk, as are low inventories and high home prices. On the other hand, the rise in mortgage rates, albeit from near historic lows, may spur a pick up in activity to lock in low rates climb further.

The earnings calendar picks up this week. Decent Q4 results are generally expected, but most of the focus to be squarely on guidance given the conflicting impacts of the virus, lockdowns, vaccines, and stimulus on various parts of the economy. This week’s calendar has Logitech (Monday). Bank of America, Netflix, Goldman Sachs, UBS, State Street, Haliburton, and J.B. Hunt (Tuesday). Proctor & Gamble, UnitedHealth, Morgan Stanley, U.S. Bancorp, Bank of New York Mellon, Kinder Morgan, Discovery Financial, Fastenal, Citizens Financial, and United Airlines (Wednesday). Union Pacific, IBM, Schwab, Intuitive Surgical, CSX, Truist Financial,, Travelers, PPG, Baker Hughes, Fifth Third, Northern Trust, M&T Bank, KeyCorp, and Citrix Systems report (Thursday). Rounding out the week are Schlumberger, Kansas City Southern, Regions Financial, and Ally Financial (Friday).

In Canada, a busy slate is in store. The BoC’s announcement (Wednesday) is the highlight. December CPI, November retail sales, November manufacturing and December housing starts populate the busy calendar. The BoC is expected to hold rates steady at 0.25% and reiterate their extraordinary forward guidance — the bank expects to hold rates at the effective lower bound until “economic slack is absorbed so that the 2% inflation target is sustainably achieved.” In December, they cited their October projection, which sees this happening in 2023. In December, they said they will continue to maintain the QE program “until the recovery is well underway…” The Monetary Policy Report will also be released, which will fine-tune the estimate for when economic slack is absorbed — we doubt there will be much change to the current 2023 timeframe given the elevated uncertainty produced by the spike in virus cases and return of stringent restrictions.

CPI and retail sales will be the highlights of Canada’s docket, especially the former given the recent backup in fixed income yields due to expectations for rising inflation this year. The CPI (Wednesday) is expected to grow 0.1% (m/m, NSA) in December after the 0.1% gain in November, led by a 3% gain in gasoline prices. The CPI is projected to hold at a 1.0% y/y growth rate (NSA) in December. There is quite a bit of uncertainty surrounding the CPI projection given the unusual seasonal swings and divergent impact of the pandemic on prices across sectors. Retail sales (Friday) are projected to edge up 0.1% in November while the ex-autos aggregate is flat. Results in line with our estimates would be consistent with Statistics Canada’s preliminary read on the November retail sales data that sales were relatively unchanged. Manufacturing shipments (Tuesday) are pegged at a 0.5% gain in November after the 0.3% rise in October, as firms continue to increase production to replenish depleted inventories. Housing starts (Monday) are seen slowing to a still robust 240k growth pace in December from 246k in November, as the housing sector remains a winner of the pandemic economy. November wholesale shipments are due Tuesday, with a 0.5% gain projected for November.


Chinese data and the BoJ feature this week. On tap from China are Q4 GDP, December industrial output, retail sales, and fixed investment figures. Japan’s BoJ meets and no policy changes are expected. But last week Governor Kuroda said the Bank is open to additional accommodation due to the worsening in the virus and tighter restrictions. Also, December trade and national CPI are slate. Around the rest of the region, data includes unemployment, trade, and prices. Malaysia’s Bank Negara meets, with no change to its 1.75% OPR expected.

China Q4 GDP (Monday) is expected to rise 6.0% y/y from 4.9% in Q3. December industrial production (Monday) should remain steady at 7.0% y/y. December retail sales (Monday) are forecast to have climbed 5.6% y/y from 5.0% previously. December fixed investment (Monday) should rise 3.0% from 2.6% in November. In Japan, the BoJ ends its two-day meeting (Thursday) where no changes to current policy settings are expected. The Bank will maintain current easing measures as it watches the impact of increased restrictions on the economy due to Covid, while also assessing the new Biden agenda and the U.S. stimulus package. Remember that Governor Kuroda warned he will take steps to ease policy “without hesitation” if necessary, as a result of the virus and more stringent lockdowns. There is talk, however, the Bank take a more flexible approach to ETF purchases. And as per other core central banks, the BoJ is in the process of a review of its policies, with the report due in March. As for data, revised November industrial production (Monday) is likely to hold at the preliminary unchanged print, after rising 4.0% in October. The December trade report (Thursday) should see the surplus widen to JPY 900.0 bln from JPY 366.1 bln with the potential for a bounce in both exports and imports after declines in November. December national CPI (Friday) is penciled in decelerating further to -1.2% from -0.9% in November, which would be the first back-to-back-to-back declines since July/August/September 2016.

Taiwan December export orders (Wednesday) are expected to rise 30.0% y/y from 29.7%. December unemployment (Friday) should remain steady at 3.8%. Hong Kong December unemployment (Tuesday) should deteriorate further, rising to a 16 year high of 6.5% from 6.2%. The rate was 3.2% in December of 2019. December CPI (Thursday) is forecast at -0.3% y/y from -0.2%, which would be 6th straight month in deflation. South Korea December PPI is due (Thursday). November prices were flat o the month, and the 12-month pace came in at -0.3% y/y versus -0.5% y/y in October. Malaysia’s Bank Negara meets (Wednesday) with no change to its 1.75% OPR expected. Policymakers left rates steady at the most recent September and November meetings, though aggressive rate cuts were seen in January through July. December CPI (Friday) is penciled in at -1.6% y/y from -1.7%, and has been in deflation since last March. Thailand December exports (Friday) are seen falling at a -1.7% y/y clip from -3.7%, though would be an 8th consecutive month in contraction. Singapore December non-oil exports (Monday) are seen falling -4.0% y/y versus the previous -4.9% decline. The pace slowed much of 2020, especially after the pandemic, with much of the weakness due to a drop in shipments to China. Philippines December trade (Thursday) should see the deficit narrow slightly to $1.6 bln from $1.7 bln.

In Australia, employment (Thursday) headlines the calendar. Jobs are expected to improve 60k in December after the 90k gain in November. The unemployment rate is seen easing to 6.7% from 6.8%. The preliminary estimate for December retail sales is due Friday — sales grew a solid 7.1% in November after the 1.4% gain in October. There is nothing from the RBA until the policy meeting on February 2. In December, RBA Governor Lowe said the RBA doesn’t expect to lift the cash rate for at least three years. New Zealand’s calendar has CPI (Friday), projected to rise 0.8% (q/q, sa) in Q4 after the 0.7% gain in Q3. 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.


Eurozone: the focus this week will be on the ECB meeting (Thursday). Vaccination programs continue to be rolled out, although somewhat slower than many had hoped. While a Brexit deal was signed since the ECB’s last meeting, it is a pretty limited agreement that together with virus restrictions at the border has led to disruptions in some cross border deliveries. The central scenario remains for a technical recession over Q4 2020 and Q1 2021 but a gradual recovery later in the year also facilitated by the EU’s recovery program, that will help cash strapped governments to implement sizeable stimulus plans.

For the ECB, that means monetary support remains necessary. However, after PEPP and TLTRO programs were strengthened in December, President Lagarde is unlikely to top up the existing policy. The transformation of the PEPP volumes into a ceiling rather than a target gives the central bank some flexibility going forward, although governments hooked on low rates will likely increase the pressure on the central bank not just to use PEPP in full, but also to push out the end date of the program as far into the future as possible. For now investors will watch for comments on the EUR and the future of the inflation target on Thursday as the strategic policy review continues.

The data calendar focuses on the first round of confidence data for January in the form of German ZEW investor confidence and preliminary PMI readings. We suspect that the initial euphoria over vaccine developments and the boost from stock building ahead of Brexit has waned now and that makes a correction in not just services, but also manufacturing sentiment likely.

Investors meanwhile have started to look past the current weakness towards a brighter future, with political developments in the U.S. boosting stimulus expectations since the last survey round. Against that background we see German ZEW Economic Sentiment (Tuesday) lifting to 56.0 (median 55.0) from 55.0 in the previous month. Eurozone Manufacturing PMI (Fri) meanwhile is expected to drop back to 54.3 (median 54.5) from 55.2 and the services reading to 45.5 (median 45.0) from 46.4 in December.

Final inflation data for December meanwhile is unlikely to bring major revision and Eurozone HICP (Wednesday) is likely to be confirmed at -0.3% y/y, far below the ECB’s target, although the negative reading is to a large extent due to Germany’s temporary VAT cut and negative base effects from oil prices.

U.K.: there have been reports of long-term investor interest in UK assets over the last, which have been left undervalued by the impact of both the long Brexit process and Covid lockdowns (the UK economy having underperformed G20 peers during lockdowns last year). Cazenove Capital estimated, for instance, that UK equities were trading as low as a 30% discount to global peers, a near 30-year low by this comparative metric, last year. Sectors that have been hard hit by Covid lockdowns include energy and banking stocks, which are sectors that the UK market is rich in. A survey conducted by the Association of Investment Companies recently highlighted that some UK equity fund managers have been heralding Brexit as an inflection point for UK stocks.

The post Brexit situation remains one of adjustment, with trade with the EU now entailing form-filling and other hurdles, and the process hasn’t gone entirely smoothly, with UK fishermen, for instance, frustrated in selling their catch to clients on the continent in sufficient time to maintain product freshness. But the adjustment process will continue and there are also expectations that pent up business investment will be unleashed, with Brexit uncertainty having finally cleared, and the pound saw moderate outperformance last week.

The UK currency was in part lifted by BoE Governor Bailey and Deputy Governor Broadbent downplaying negative interest rates last week. This alongside the rapidly proceeding Covid vaccination program in the UK, which is leading the way globally and is on track to have nearly 25% of the population vaccinated including nearly all of the at-risk groups as soon as mid February. The Covid vaccination rollout enables investors to look across the valley of prevailing lockdown realities, with UK nations last week going into a ‘tier 5’ lockdown, the most restrictive level since the full ‘mother lockdown’ of spring last year.

The UK data calendar this week is highlighted by December inflation numbers (Wednesday), along with December retail sales and the preliminary December PMI manufacturing and services surveys (Friday). Headline CPI is expected to lift slightly, to 1.3% y/y from 1.1%. This would fit the BoE projection. Inflation will jump in March and April, when strong base effects kick-in on year-on-year price comparisons (caused by last years ‘mother’ of lockdowns). As for the prelim PMI readings, a deterioration can be expected as a consequence of much of the UK nations moving into tighter lockdowns in January. The median forecast for the composite PMI is 45.5 versus the 50.4 level seen in December.

Switzerland: The Swiss data calendar is quiet this week.

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.

Solid Picks

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.

TickerRankCompanyDividend Beta 1 YR1YR vs S&P 5003YR vs S&P 5003R vs SectorOverall Score
HEAR1Turtle Beach– 0.76120.70%985.60%922.00%98
BIO2Bio-Rad Laboratories– 0.7244.20%95.60%89.30%98
KGC4Kinross Gold1.70%0.4540.60%22.50%42.90%84
HVT6Haverty Furniture Cos2.70%0.8661.90%35.20%-3.90%98
MLR7Miller Industries1.80%0.762.30%33.60%-5.50%98
GOLD8Barrick Gold1.60%0.3915.30%25.60%45.90%84
GLDD9Great Lakes Dredge & Dock– 0.835.70%136.10%156.30%89
FN10Fabrinet– 0.898.60%145.40%81.80%99
MED11Medifast2.20%0.972.20%172.10%133.10%99– 0.8780.50%123.30%84.20%98
LOGI14Logitech International0.90%0.66104.20%145.20%81.60%98
DG15Dollar General0.70%0.519.60%72.70%90.30%57
ICLR17Icon– 0.854.40%45.40%39.10%86
BAH18Booz Allen Hamilton1.40%0.682.60%101.30%121.40%79
TMO20Thermo Fisher Scientific0.20%0.7333.40%96.30%90.00%94
LSTR21Landstar System0.60%0.8514.40%2.40%22.60%79
MTD23Mettler-Toledo Intl– 0.8631.30%43.90%37.60%88
ADUS24Addus HomeCare– 0.778.40%183.00%176.70%96
HLI27Houlihan Lokey1.90%0.5221.20%7.10%37.70%93
COST30Costco Wholesale0.80%0.597.70%57.20%74.80%51
WPM32Wheaton Precious Metals1.20%0.3727.60%47.70%68.00%56
NOMD33Nomad Foods– 0.427.00%7.50%25.10%74
BR34Broadridge Financial Soln1.50%0.82.50%25.10%-38.60%91
GMED35Globus Medical– 0.824.10%5.30%-1.00%79
HMSY36HMS Holdings– 0.4511.30%67.50%61.20%87
Summary  1.10%0.6929.20%88.40%83.60%86

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.

TickerCompanyDividendBeta 1YR1YR  vs S&P3YR vs S&P3YR vs SectorDividends Score
BIPBrookfield Infr Partners3.60%1.241.10%18.10%23.60%15
BKHBlack Hills3.70%1.17-36.20%-14.40%-8.80%78
BUDAnheuser-Busch InBev2.10%0.89-28.70%-78.50%-60.90%27
CBSHCommerce Bancshares1.50%1.03-3.90%4.20%34.70%61
CINFCincinnati Financial2.60%1.24-25.10%-6.40%24.10%77
DDDuPont de Nemours1.50%1.1721.50%-58.40%-38.10%12
EMREmerson Electric2.40%1.19-5.70%-19.50%0.70%80
FRTFederal Realty Investment4.90%1.2-44.60%-62.50%-42.00%78
GPCGenuine Parts3.10%1.13-12.50%-33.40%-72.50%70
HDHome Depot2.20%1.086.30%6.90%-32.10%77
HRLHormel Foods2.20%0.45-16.40%-3.30%14.30%64
JNJJohnson & Johnson2.50%0.67-4.90%-24.10%-30.40%70
LOWLowe’s Companies1.40%1.1827.20%36.20%-2.90%59
MOAltria Group8.40%0.74-27.00%-70.20%-52.60%94
NFGNational Fuel Gas4.00%0.77-13.50%-53.10%26.20%49
PGProcter & Gamble2.40%0.71-6.00%19.30%36.90%65
PHParker Hannifin1.20%1.4425.00%0.60%20.80%60
SWKStanley Black & Decker1.60%1.47-13.40%-38.00%-17.80%89
Summary 3.00%1.02-11.20%-22.80%-10.80%66

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.

TickerCompanyDividendBeta 1YR1YR  vs S&P3YR vs S&P3YR vs SectorDividends ScoreOverall Score
DOWDow5.10%1.33-12.40%– – 607
VZVerizon Communications4.10%0.52-15.00%-15.70%-5.50%8768
WBAWalgreens Boots Alliance4.50%0.82-44.00%-82.20%-84.70%7467
XOMExxon Mobil7.90%1.1-50.90%-84.10%-2.70%7361

Economic Data Calendar

We have a light schedule of releases in the week of the MLK holiday, including the early housing sector reports for December and further January producer sentiment data. Housing starts are expected to climb in December as they rise toward their 13-year high seen last January, while permits ease from a 14-year high in November. We expect an existing home sales rise back toward its 14-year high seen in October, while the median sales price is likely to set a new all-time high for the fifth time in six months. We expect a small January rebound for the Philly Fed index, with support from stimulus and vaccines.

Week of January 18

The slew of reports at the end of this week put a modest downside spin on the growth outlook as we enter a particularly light week for U.S. data. December declines for retail sales left a third straight month of contraction, and the drops documented that heightened coronavirus restrictions in the face of aggressive holiday seasonal factors had a big impact on consumer spending. Yet, strength in output data, such as seen in the December industrial production report, indicated that the goods sector of the economy continues to boom.

Alongside the goods sector overall, the housing sector looks poised to remain strong through the winter months, though the warm weather boost in November will subside in December and January given the year-end boost in utility output. The factor data also remain solid, and these figures have received a big boost since November from rebounding order and delivery activity at Boeing that will deplete inventories but boost the equipment spending and export figures. We also have a steady climb in energy prices into January that lift most headline inflation metrics, as was seen in the December reports.

Philly Fed Index: 13.0

The Philly Fed index is seen rebounding to 13.0 in January from 11.1, versus a 40-year low of -56.6 in April. The Philly Fed index posted a bottom in the last recession of -40.9 in November of 2008. These diffusion indexes should remain elevated as factory activity continues to ramp up. We have coronavirus headwinds since late-November that have restrained the indexes, but a second round of stimulus and coronavirus vaccines are providing a lift into Q1. Producers continue to face lean inventories and rebounding demand in many industries above pre-pandemic levels that should sustain production increases despite retail sector disruptions from virus outbreaks and frustrations with vaccine delays.

Housing Starts: 1.560 mln

Housing starts are expected to climb to a 1.560 mln pace from 1.547 mln in November and, versus a 13-year high of 1.617 mln in January ’20. Permits are expected to ease to 1.600 mln from a 14-year high of 1.635 mln in November. We saw a prior 1.536 mln 14-year high in January. All the housing measures have rebounded sharply since Q2, with recent 14-year highs for new and existing home sales and an all-time high for pending home sales in August. Before the pandemic, permits were already following a solid growth path that began in Q2 of 2019, fueled by low mortgage rates, and this strength has resumed with the end of shutdowns, alongside an emerging migration of families to the suburbs. We expect a 1.545 mln average for starts in Q4, following a 1.432 mln pace in Q3 and a 1.079 mln pace in Q2. We expect a 1.593 mln average for permits in Q4 that outpaces the 13-year high 1.501 mln average in Q3, and a 1.490 mln prior high in Q4 of 2019.

Initial Jobless Claims: 800k

Initial jobless claims for the week of January 16 should remain elevated, though we assume a -165k drop in the weekly pace to 800k, after a 181k jump to 965k from 784k. Seasonal adjustment for initial claims was switched to being additive from multiplicative in September, and the usual seasonal rise in NSA claims to a peak in early January 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 810k in January, following averages of 825k in December, 749k in November, and 786k in October. 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 January payroll rise after the -140k December drop.

Continuing claims rose by 199k to 5,271k in the week of January 2, following an unrevised 5,072k figure. We expect continuing claims to fall -171k to the 5,100k area for the week ending on January 9. Though rising coronavirus restrictions are likely prompting some stalling in the continuing claims downtrend, we expect resumed bigger declines into early-2021. Continuing claims will fall -422k between the December and January BLS survey weeks if the weekly level drops back to 4,900k over the next two weeks. We saw prior drops of -767k in December, -1,734k in November, -4,924k in October, -1,745k in September, -2,459k in August, -2,280k in July, and -1,610k in June.

Existing Home Sales: 6.720 mln

We expect existing home sales to grow by 0.4% in December to 6.720 mln from 6.690 mln in November and a 14-year high of 6.850 mln in October. Pending home sales fell -2.6% in November, as this measure continues to unwind the all-time high in August. The MBA purchase index grew 2.6% in December, continuing to set new highs. The two measures are consistent with a still-elevated sales pace through year-end, and existing home sales are tracked at closings, which leaves a lag for this series of one or two months. The median sales price is expected to mark a new all-time high of $314,000 from $310,800 in November and a $313,100 current all-time high in October, leaving a new all-time high in five of the last six months, as the usual winter pull-back for this NSA measure has been obliterated by the coronavirus. We expect a dip in the y/y median price gain to a still-lofty 14.4% from 14.6% in November. In Q3, we saw an average sales pace of 6.137 mln, after a depressed 4.313 mln rate in Q2, and we expect an even stronger 6.757 mln pace in Q4.

 18 Jan  United States Martin Luther King, Jr. Day – U.S. Markets Closed
 19 Jan 16:00 United States Net Long-Term Security Purchases  NOV $30.0B  $51.9B
 19 Jan 16:00 United States Total Net TIC Flows  NOV $30.0  -$10.4B
 20 Jan 07:00 United States MBA Mortgage Applications 01/15    16.7%
 20 Jan 08:55 United States Redbook 01/16    -2.6%
 20 Jan 13:00 United States Treasury Auctions 20-Yr Bonds Reopen
 21 Jan 08:30 United States Housing Starts  DEC 1.560M 1.560M 1.547M
 21 Jan 08:30 United States Building Permits  DEC 1.600M 1.635M R
 21 Jan 08:30 United States Housing Completions  DEC 1.250M  1.163M
 21 Jan 08:30 United States Philadelphia Fed Index  JAN 13.0 12.0 11.1
 21 Jan 08:30 United States Initial Claims 01/16  800K 903K 965K
 21 Jan 08:30 United States Continuing Jobless Claims 01/09  5,100K  5,271K
 21 Jan 09:45 United States Bloomberg Consumer Comfort Index 01/17    43.2
 21 Jan 11:00 United States Treasury Announces 2-Year FRNs
 21 Jan 11:00 United States Treasury Announces 5-Year Notes
 21 Jan 11:00 United States Treasury Announces 7-Year Notes
 21 Jan 11:00 United States EIA Crude Oil Stocks 01/15    -3.2M
 21 Jan 11:00 United States EIA Gasoline Stocks 01/15    4.4M
 21 Jan 11:00 United States EIA Distillate Stocks 01/15    4.8M
 21 Jan 13:00 United States Treasury Auctions 10-Yr TIPS
 21 Jan 16:30 United States M2 – Week Ended 01/11    $107.4B
 22 Jan 09:45 United States Markit PMI – Manufacturing – Flash  JAN   57.1
 22 Jan 09:45 United States Markit PMI – Services – Flash  JAN   54.8
 22 Jan 10:00 United States Existing Home Sales  DEC 6.720M 6.550M 6.690M
 22 Jan 10:00 United States NAHB Housing Mkt Index  JAN 86  86
 22 Jan 10:30 United States EIA Natural Gas Stocks 01/15    -134B
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