Report (Premium Edition) 02-01-2021

We do believe that the S&P 500 (INDEXSP: .INX) is signally an end to its bullish trend (see chart above) despite the bulls remaining optimistic over stimulus, vaccines, earnings.  Bears appear to be gaining an edge who are pointing to the second virus wave/lockdowns, worries over a small fiscal package, and delays to the vaccine rollout. The latter weighed on Wall Street on Friday after the major indexes had posted record highs earlier in the week. Treasury yields dipped to end the week on the erosion in stocks, regaining some lost ground. The 30- and the 10-year rate fell 2 bps to 1.847% and 1.086%, respectively, with the wi 2-year little changed at 0.130%.

I think 2021 will be a crazy year for investors because markets are likely to continue the uncertainty.  Just this week:

• Monday: JPMorgan tells clients, “We are receiving numerous questions [about] whether a bubble is potentially forming in financial markets.”
• Tuesday:  A massive group of individual traders from Reddit dominated financial news with the promotion of GameStop stock (and other popular shorted stocks) and is now crushing hedge funds for billions.
• Wednesday: The S&P 500 turns red and starts to show signs of a bear while the Dow drops to a new record percentage since October.
• Thursday: The equities markets rally back as Robinhood and many other brokers halt trading in GME and other stocks.  The blowback united the left and right against the brokerages.
• Friday:  Trading resumes on a limited basis at the brokerages for GME and the S&P 500 had its worst week since last October.

It will be a busy week of data, earnings, and supply, though today’s calendar is light. The only economic reports are the Dallas Fed manufacturing index and the Chicago Fed national activity index. The Treasury auctions $60 bln of 2-year notes to kick off a record $183 bln in short-dated coupon offerings.

Today’s larger-cap reports come from Kimberly-Clark, Otis, Brown & Brown, and Graco. The FOMC meets this week (Tuesday, Wednesday) though no policy changes or shifts in the guidance are expected. Earnings later in the week include Apple, Facebook, Tesla, Microsoft, J&J, Starbucks, and Boeing. Data later in the week includes preliminary Q4 GDP, durable goods, consumer confidence, new home sales, and income and consumption figures.

Key Drivers for the Week of February 1

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.

• Markets in flux on financial gyrations, pandemic issues, earnings, stimulus
• Central bank meetings include BoE, RBI, RBA, and BoT; no policy changes anticipated
• U.S. jobs report headlines along with manufacturing/services ISMs, Treasury refunding
• Japan PMIs, auto sales, PCE; China manufacturing PMI; Korea trade; HK retail sales
• Eurozone PMI, GDP, HICP, retail sales; ECB economic bulletin slated
• UK CIPS manufacturing, services PMIs0, mortgage lending, home price reports 

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.

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.

Week Ahead: Shaken and Stirred

On February 1, 2021

The markets were shaken and stirred last week by virus and vaccine developments, U.S. stimulus uncertainties, and the Reddit/GameStop frenzy on Wall Street that sparked a jump in anxiety and volatility. While fundamentals have taken a back seat to a lot of exogenous events, there will be plenty of data ahead to digest that will give an early view of 2021 activity. An expected rebound in January employment highlights a full U.S. docket. In Europe, the data is expected to show a struggling service sector, a better than feared Q4 Eurozone GDP reading and a sharp jump in Eurozone inflation numbers. The BoE meets but no changes are projected. Asia’s thin calendar has regional bank meetings in Australia, Thailand and India, with no changes expected to the respective policy settings.

NORTH AMERICA

While attention in the markets has drifted away from data and fundaments, this week’s U.S. data calendar has several reports that will shed light on how the economy fared into the new year, especially as virus infections accelerated and lockdowns intensified, while the political situation devolved. The January employment report (Friday) takes center stage and should show the economy was shaken but not broken by recent events. We project a 100k bounce in total employment after the -140k drop in December. The jobless rate is expected at 6.7%, matching the reading for December. Notably, we see a 30k gain in January factory jobs after the 38k increase in December. This job category is a source of upside risk to our jobs estimate, as factories were less impacted by the lockdowns relative to the service sector. Of course, the service sector is a wildcard, but the bulk of the layoffs were likely already implemented in December to a sector that was already hollowed out last spring.

Business sentiment surveys are also of considerable interest this week, with the latest round of manufacturing and non-manufacturing surveys covering January. The manufacturing ISM (Monday) is expected to slip to 59.0 in January, slowing from a 2-year high of 60.7 in December. The ISM-NMI (Wednesday) index should dip to 57.0 from 57.2 in December. Producer sentiment has remained firm into the turn of the year as businesses scrambled to rebuild inventories, overcoming headwinds from delays for both stimulus and vaccine distributions, alongside tightened coronavirus restrictions through the holidays. Hence, there is upside risk to our manufacturing ISM estimate, alongside modest downside risk to our ISM services projection.

The trade balance (Friday) and factory orders (Thursday) are more minor but will have important implications for the growth outlook. As noted above, the factory sector has continued to rebound as firms try to rebuild inventories in the face of strong demand. We project a 0.6% rise in factory in December. Meanwhile, the trade deficit is expected to narrow in December to -$65.7 bln from a 14-year high of -$68.1 bln in November. A December petroleum price rebound boosted both exports and imports of oil, providing some uncertainty over the trade balance during the month.

Treasury supply will be in focus. It is an integral component to the markets given the massive borrowing requirements currently in play, and given uncertainty over any additional stimulus. The Treasury February refunding is slated with the Q1 and Q2 financing estimates announced (Monday) ahead of the borrowing details (Wednesday). We expect a reduction in borrowings to about $800 bln versus the prior $1.127 bln projection given a larger than expected cash balance. Q2 borrowing are seen at Q2 financings are likely to be boosted by another stimulus package and we’ll forecast a $1 tln borrowing need. We suspect the debt managers won’t announce further increases to coupon issuance and is likely to hold them steady at March levels. Hence, we expect the February refunding to include a $58 bln 3-year note (Tuesday), a $41 bln 10-year (Wednesday), and a $27 bln 30-year bond, unchanged from the November refunding.

The schedule of earnings is again very busy: Monday has Thermo Fisher Scientific, Vertex Pharma, NXP Semi, Liberty Broadband, Warner Music, and ON Semi. Tuesday provides Amazon, Alphabet, Alibaba, Pfizer, Exxon Mobil, Amgen, UPS, Sony, BP, Chubb, ConocoPhilliips, Takeda Pharma, Ferrari, Emerson Electric, Eaton, EA, IDEXX Labs, Sysco, Microchip Technology, Match Group, Sirius XM, McKesson, Marathon Petroleum, Transdigm, Catalent, Amcor, PerkinElmer, Royal Caribbean, Imperial Oil, Entegris, Fortune Brands, and Lennox. Wednesday brings PayPal, AbbVie, QUALCOMM, GlaxoSmithKline, Spotify, Boston Scientific, Humana, MetLife, Biogen, Cognizent Tech, Allstate, Canon, Yum China, DTE Energy, IAAC/Interactive, IDEX, Avery Dennison, and Apollo Global Management. Thursday has Toyota, Merck, Unilever, T-Mobile, Shell, Bristol-Myers Squibb, Philip Morris, Total, Gilead, Cigna, Becton Dickinson, Snap, Activision Blizzard, ABB, ICE, Air Products, DuPont de Nemours, Ford, Peloton, Unity Software, Pinterest, Baxter International, Nokia, Cummins, ING, Alexion Pharma, Parker-Hannifin, Carrier, Prudential, Yum! Brands, Hershey, Clorox, Ball, AMTEK, Fortinet, Fortive, Deutsche Bank, FleetCor, IP, Xylem, Hartford, Quest Diagnostics, CMS Energy, Nomura, Monolithic Power, News Corp, Carlyle Group, Wynn Resorts, and Snap-on. Friday has Sanofi, Estee Lauder, Illinois Tool, Regeneron, Aon, Honda, Trane, Zimmer Biomet, FirstEnergy, and Cardinal Health.

Another back-loaded docket awaits for Canada this week, with employment (Friday) the highlight. Our projection is for a -20.0k decline in January employment following the -52.7k drop in December. The unemployment rate is seen at 8.9% from 8.8% in December. The trade deficit (Friday) is anticipated to narrow to -C$3.1 bln in December from -C$3.3 bln in November. The January Ivey PMI is also due Friday.

ASIA

Several central bank meetings highlight this week’s regional agenda, data releases are on the lighter side. Japan will release January manufacturing and services PMIs, along with December consumption figures. China reports its official manufacturing PMI. Elsewhere, retail sales, employment and price data fill out the slate for the smaller economies. For central banks, the RBI, RBA and BoT all meet, with rates universally seen unchanged at 4.0%, 0.10%, and 0.50%, respectively.

In Japan, the January Jibun/Markit manufacturing PMI (Monday) should improve marginally to 50.5 to 50.5. The index had not been above the 50 boom/bust line for 19-months, prior to December’s 50.0 outcome. January auto sales are also due Monday. The January services PMI (Wednesday) is seen slipping to 45.5 from 45.7 previously. December PCE (Friday) is forecast to have fallen to a -1.0% contraction rate after posting a 1.1% clip previously. China’s Caixin/Markit manufacturing PMI for January (Monday) should show ongoing expansion (as it’s been since March) and was at 50.0 a year ago. However, risk is for further slight easing in momentum after the index dropped -1.9 ticks to 53.0 in December, from the 10-year high of 54.9 in November. On Sunday the official PMI was released and slipped -0.6 points to 51.3.

India’s RBI meets (Friday), and is expected to hold rates steady at 4.0%. The Bank has cut its repo rate 115 basis points since March of last year. South Korea January trade numbers (Monday) are expected to reveal ongoing gains in exports, especially for tech, though the pace likely cooled after surging 12.6% y/y in December (the strongest since October 2018). Exports were basically in contraction for about two years, from December 2018 through October 2020. CPI (Tuesday) is penciled in rising to a 0.7% y/y rate from 0.5% in December. Taiwan December leading indicators are due Wednesday. January CPI (Friday) should remain steady at 0.1% y/y. In Hong Kong, December retail sales (Tuesday) are seen falling deeper into contraction at -14.0% from -4.0% on a value basis, and retreat -12.0% from -4.7% on a volume basis. Thailand’s BoT meets Wednesday, with no change to its 0.50% o/n repo rate, where it’s been since May’s 25 bp easing. The rate was at 1.00% in February 2020. January CPI (Friday) is penciled in at -0.3% from -0.4%. Singapore January PMI (Tuesday) is expected to rise to 51.0 from 50.5. It bounced to 50.2 in July, from 48.0, and has held above the 50 level since.

In Australia, the RBA’s policy meeting (Tuesday) takes center stage, with no change to the 0.10% rate setting the expected outcome. In December, RBA Governor Lowe said the RBA doesn’t expect to lift the cash rate for at least three years. Given the increase in lockdowns globally and the emergence of mutated strains of the virus, we suspect the Governor will repeat the low-for-a-long-time mantra that all the major central banks adopted last year. RBA governor Lowe testifies to Parliament (Friday) and the RBA publishes the Report on Monetary Policy (Friday). Governor Lowe (Wednesday) delivers an address titled “The Year Ahead.” The final report for December retail sales is due Friday — the preliminary report showed a -4.2% m/m drop after the 7.1% gain in November. Housing investment for December (Monday), December building approvals (Wednesday) and December trade (Thursday) round out the calendar. New Zealand’s calendar has Q4 employment (Thursday), expected to be unchanged (0.0%) after the -0.8% decline in Q3. We do not hear from the RBNZ again until February 24. No change to the 0.25% rate setting is anticipated for quite some time.

EUROPE

Eurozone: it seems the current lockdowns have had less of an impact on overall economic activity in Q4 last year than feared. However, with concerns over virus mutations and a slow rollout of vaccination programs across many Eurozone countries likely to prevent a quick re-opening of economies, consumers are increasingly disheartened as they can’t see the light at the end of the tunnel. Meanwhile manufacturing, which did remarkably well at the end of last year, may have gotten an extra boost from stock building ahead of Brexit, and it remains to be seen whether the positive momentum can be sustained.

Against that background data releases this week will likely bring conflicting messages. Final PMI readings for January are expected to confirm preliminary results that highlighted the struggles for the services sector. The first reading for Q4 Eurozone GDP is likely to come in much better than initially feared after Germany and Spain unexpectedly reported a positive reading. Preliminary Eurozone inflation numbers meanwhile are set to jump sharply higher, and judging by national data not just because Germany’s temporary VAT cut fell out of the equation.

Base effects are largely to blame and the numbers will still leave the Eurozone HICP rate far below the ECB’s target. Still, they won’t strengthen the case of the dovish camp at the ECB, which is still insisting that rate cuts remain a possibility. We see the central bank is firmly in wait and see stance at the moment, but apparently central bankers are struggling to communicate the lack of a directional bias at the moment after Lagarde’s statement saw markets pricing in an implicit tightening bias.

The final reading for the Eurozone Manufacturing PMI (Monday) is expected to confirm the preliminary report of 51.5 (median same). The final Services PMI (Wednesday) is seen unchanged at 45.0 (median same), which should leave the composite at 47.5, which would signal a contraction in activity after what was likely a better than expected Q4 number. Germany and Spain unexpectedly reported a rise in activity that quarter and the contraction in France was much less severe than feared. Against that background we expect the first reading for Eurozone Q4 GDP (Tuesday) to show a contraction of -0.6% q/q (median -1.4%), as a partial correction from the 12.5% q/q jump in Q3. The risk of a technical recession over Q4/Q1 still remains on the table, however. More forward looking, German manufacturing orders for December (Friday) should give a glimpse of demand going into the first quarter and we are looking for a correction of -0.8% m/m after the 2.3% rise in November.

At the same time Eurozone HICP inflation (Wednesday) is seen lifting to 0.5% y/y (median 0.4%) from -0.3% y/y in December, largely thanks to base effects from taxes and administrative charges. It is too early to write off downside price pressures and still far too low for the liking of the ECB. Other data releases include December reading for Germany and Eurozone retail sales, which will be overshadowed by GDP numbers, however. Eurozone December PPI is also unlikely to attract too much attention.

Events include the release of the ECB’s economic bulletin on Thursday, although the publication has not attracted too much attention in recent months.

U.K.: the pound is showing moderate gains since the UK’s departure from the transitory membership of the EU’s single market and customs union at year-end 2020. The UK currency’s perkiness has been a response to the consequence of the UK Brexiting with a deal, bringing a long-awaited end to uncertainty. This, and the UK’s ahead-of-the-game Covid vaccination program (despite some setbacks), which could see UK government make a start to reverse out of restrictions as soon as mid February, when all of the most-vulnerable groups should have been vaccinated. In this context it should be noted that the pound remains at historically weak levels by the measure of the real effective exchange rate.

UK data calendar this week is highlighted by the February BoE Monetary Policy Committee meeting (announcing Thursday) and the final releases of the January UK PMI surveys. The manufacturing PMI is due Monday, followed by the services PMI, and within the composite reading, on Wednesday, and the construction version on Thursday.

Regarding the BoE, no change is widely anticipated, which would leave the repo rate at 0.10% and the QE total at GBP 875 bln. The central bank will also release its quarterly MPR (Monetary Policy Review, formerly known as the Inflation Report), which will bring tweaks to inflation and growth forecasts. Not much change is expected. The advent of the smooth Brexit and trade deal with the EU, and Covid vaccine rollout, should keep policymakers on hold, looking for economic improvement during the year and into 2022. The BoE has let it be known that it has been considering the option of negative interest rates, though both Governor Bailey and Deputy Governor Broadbent downplayed this in January.

As for the final PMI data, the median forecasts are for unchanged readings from preliminary figures, which were negatively impacted by both the return of a national-wide lockdown and the reality of Brexit, which despite the deal, has seen the UK’s overall terms of trade deteriorate somewhat. The preliminary UK January PMI surveys had come in much weaker than expected. The headline composite PMI plunged to 40.6 from 50.4 in December. Pronounced weakness in the service sector drove the composite lower, with services bearing the brunt of the lockdown across the UK nations, which has been the most severe since last year’s ‘mother’ lockdown. The prelim services PMI headline dove to 38.8 from 49.4. The prelim manufacturing PMI fell to a headline reading of 52.9 from 57.5, which was near the median forecast for 53.0. Much of the manufacturing sector has remained open, despite the lockdown. The drop in the composite reading, while sharp, is still less much less severe than was seen during early spring last year.

Switzerland: The Swiss data calendar is highlighted by the release of the January manufacturing PMI (Monday). Like the KOF leading indicator (released last Friday), it is expected to weaken in light of the Europe-wide lockdown status.

Stocks & ETF Watch List

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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.

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.

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.

Economic Data Calendar

We have a heavy week of releases at the start of February, culminating with the January jobs report, where we expect a 100k payroll rise with a steady jobless rate at 6.7%. We expect a solid December gain for construction spending and a moderate factory orders gain. The trade deficit should narrow in December, with big component gains. We expect January moderation in the ISM and ISM-NMI indexes around elevated levels, and we expect a big Q4 productivity drop after two out-sized quarterly gains.

Week of February 1

This last week of economic releases sharply narrowed the risks to the growth trajectory as we enter 2021. We saw a 4.0% Q4 GDP gain that almost exactly tracked estimates, but with a solid 3.0% Q4 growth clip for final sales that left consumption and business fixed investment entering Q1 on a stronger trajectory than we had assumed. The income data for December captured some boost for jobless benefits from Christmas stimulus, with less December consumption weakness than we feared, and the advance indicators report revealed both a strong trajectory for exports and a restrained inventory climb that leaves more room for a bounce in the first half of 2021.

U.S. imports bounced more rapidly than exports in the second half of 2020, but we expect this mix to be reversed in the first half of 2021 as exports play catch-up, bringing the mix of trade back toward the pre-pandemic balance. Export growth overtook import growth in December, as seen in the advance indicators report, and this mix should extend into Q1. The U.S. service surplus in tourism will be slower to recover, given heightened reluctance to engage in international travel, but even this imbalance should eventually unwind, perhaps driving more of the story in the second half of 2021 than the first half.

Construction Spending: 0.8%

Construction spending is expected to rise 0.8% in December after a 0.9% November increase. We expect a 2.3% private residential construction increase after a 2.7% November rise, a -0.5% decline for public construction after a -0.2% November decrease, and a -0.5% private nonresidential drop after a -0.8% November decline. We expect construction spending to grow at a 12.5% pace in Q4, following rates of 10.9% in Q3 and -15.2% in Q2. Construction hours-worked from the jobs report rose 0.9% in December, and construction jobs rose 51k. The building material sales component of retail sales rose by 0.9% in December. All the housing measures have rebounded sharply since Q2 with an array of new 14-year highs across various metrics in Q4, and this should translate to a lagged climb in construction spending into early-2021.

ISM/ISM-NMI: 59.0/57.0

The ISM index is expected to fall to 59.0 in January from a 2-year high of 60.7 in December, 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 slip to 57.0 from 57.2 in December, 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 into the turn of the year as businesses scramble to rebuild inventories, despite headwinds from delays for both stimulus and vaccine distributions, alongside tightened coronavirus restrictions through the holidays.

Productivity, Q4 Preliminary: -3.0%

The GDP data imply productivity contraction rate of -3.0% in Q4, after an expected Q3 growth boost to 5.3% from 4.6%. We expect a 5.3% growth rate for the BLS output measure in Q4 after an expected growth boost to 44.1% from 43.4% in Q3. We expect a Q4 unit labor cost (ULC) growth rate of 5.0%, after an expected trimming to -7.1% from -6.6% in Q3. We assume a flat Q4 figure for compensation per hour after an expected boost to -2.1% from -2.3% in Q3. The big 2020 ULC and hourly earnings swings reflect erratic gyrations in the GDP compensation data through the pandemic, alongside big output and hours-worked swings.

Initial Jobless Claims: 780k

Initial jobless claims for the week of January 30 should remain elevated, though we assume a -67k drop in the weekly pace to 780k, after a -67k dip to 847k from 914k. 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 January may be lifting the reported SA data with the new seasonal factors given the unusually high claims level. We likely also saw a lift from expanded coronavirus restrictions. Claims are expected to average 850k in January, after averages of 825k in December, 749k in November, and 786k in October. The 914k January BLS survey week reading exceeded recent survey week readings of 892k in December, 748k in November, and 797k in October. We assume a 100k January payroll rise after the -140k December drop.

Continuing claims fell by -203k to 4,771k in the week of January 16, following a downwardly revised 4,974k figure. We expect continuing claims to fall -171k to the 4,600k area for the week ending on January 23. Though rising coronavirus restrictions are likely prompting some stalling in the continuing claims downtrend, we expect resumed bigger declines through Q1. Continuing claims fell -551k between the December and January BLS survey 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.

Factory Orders: 0.6%

Factory orders are expected to rise 0.6% in December, with a 0.9% ex-transportation increase. Shipments should rise 1.3%, while inventories grow 0.1%. The forecasts reflect a 0.2% durable goods orders rise with a 0.2% ex-transportation rise and a -1.0% transportation decrease. The factory goods I/S ratio should fall to a 17-mln low of 1.39, after two months at 1.41, versus 1.40 pre-pandemic readings over the four months ending in February ’20. We saw 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 dipped to an 18-month low of 1.68 from 1.70 in November, versus an all-time high of 2.24 in April. We expect significant gains in factory orders, shipments and inventories going forward as companies continue to try to rebuild inventories.

Trade Deficit: -$65.7 bln

The trade deficit is expected to narrow in December to -$65.7 bln from a 14-year high of -$68.1 bln in November. We expect exports to grow 2.8% to $189.3 bln, while imports grow 1.1% to $255.1 bln. The trade deficit should average -$65.7 bln in Q4 after gaps of -$62.8 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 December petroleum price rebound boosted both exports and imports of oil. We saw a surge in trade for vehicles after a November pull-back that marked the first declines since May. We expect a $30 bln bilateral goods deficit between the U.S. and China with elevated import and export figures as businesses rebuild inventories. The bilateral gap previously fell between mid-2019 and March 2020 to an -$11.8 bln deficit that marked the smallest gap since 2004, versus a -$43.1 bln all-time wide bilateral gap in October of 2018.

Employment: 100k

We expect a 100k January nonfarm payroll increase, after a -140k drop in December, but gains of 336k in November and 654k in October. We assume a 30k factory jobs increase in January, after a 38k December rise. We’ll see the annual revisions for payrolls with this report, and guidance indicated a -173k revision to the March 2020 level. The jobless rate should hold steady from 6.7% in December. Hours-worked are assumed to bounce 0.2% after a -0.4% December decline, with the workweek ticking back up to match the 20-year high of 34.8 from 34.7 in December. Average hourly earnings are assumed to rise 0.1% in January, as we partly reverse the 0.8% December spike with the big drop in low-wage workers. The y/y wage gain should slip to 5.0% from 5.1%. 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 to an 8.0% April peak. We expect the payroll rebound to resume in 2021, though the climb left a net drop for employment for 2020 overall.