Report (Premium Edition) 02-15-2021

The markets return from the long Presidents Day holiday weekend. Optimism on a global recovery continued to prevail in overnight trading where European and Asian equities posted solid gains. China remained closed for lunar new years. Bonds sold off with hefty losses, paced by a 5.4 bp jump in Gilt yields to 0.569%, the highest since March.

Although the Fed is trying to keep a cap on inflation, we believe that the increased government spending will cause more inflation and that the Federal Reserve will continue its policy for 2021. This doesn’t mean there won’t be inflation, but rather the fed ignoring it. We are already seeing signs with the 10 Year rising with a solid bull trend (see chart above). Investors should be cautious of sectors/investments that are sensitive to interest rate changes such as corporate bonds/funds as these are more likely to see dramatic changes in their value if rates increase.

This will be a busy week of data and events, along with earnings. The retail sales report (Friday) headlines. Today’s slate has the February Empire State index, which is seen improving to 8.0 from 3.5. December Treasury TIC flow data ate on tap as well. There will be Fedspeak from Bowman, George, Kaplan, and Daly.

The earnings calendar resumes, with reports due from Medtronic, HSBC, CVS, Zoetis, Palantir, Ecolab, Ringcentral, Agilent, AIG, American Waterworks, Occidental Petroleum, TransUnion, SolarEdge, Royal Caribbean, Black Knight, Intercontinental Hotels, Advance Auto Parts, and Allegion. Other economic reports this week include the Philly Fed manufacturing index, industrial production, PPI, trade prices, housing starts, existing home sales, and jobless claims.

There is more Treasury supply with 20-year bond and 30-year TIPS auctions. The FOMC minutes are due, as well as a hefty slate of Fedspeak. There are a number of earnings announcements but the slate is thinning.

Key Drivers for the Week of February 15

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.

  • Trading calms but stocks extend gains as positive developments remain supportive
  • Bond yields rise on global economic recovery and as inflation expectations heat up
  • U.S., Canada on holiday Monday; China off through Wednesday for lunar new years
  • U.S. monitors retail sales, PMIs, PPI, trade prices, housing; FOMC minutes, Fedspeak
  • Canada data: CPI, retail sales, manufacturing report, existing-home sales due
  • Japan preliminary Q4 GDP, production, tertiary index, trade, core machine orders, CPI
  • Eurozone copes with virus, lockdowns, along with Italian political developments  
  • German ZEW investor sentiment, manufacturing, and services PMIs; Eurozone GDP
  • UK slate headlined by CPI and retail sales reports

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 5003934.840.47%18.453937.233905.78Bull
Crude (WTI)60.1120.00%060.30559.559Bull
10 Year1.2593.59%0.0441.2651.208Bull
US Dollar Index90.156-0.36%-0.32490.37590.118Bear
REIT Index2200.870.02%0.352203.932183.13Bull

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.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have real estate investment trusts (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1Month 6 MonthsYTD Return1YR vs S&P 5003YR ReturnTrend
 Basic Materials0.40%-0.70%21.50%3.40%7.70%25.90%Bull
 Communication Services1.50%11.90%28.80%9.60%15.00%54.90%Bull
 Consumer Cyclical-1.00%4.00%30.70%8.10%31.70%88.60%Bull
 Consumer Defensive-0.30%1.30%6.50%-1.00%-11.30%31.10%Bull
 Financial Services0.90%2.50%28.70%7.70%-14.70%15.90%Bull
 Real Estate1.10%5.90%13.00%5.50%-24.80%35.10%Bull

Week Ahead: The Pause that Refreshes

On February 15, 2021

The markets took a pause to refresh last week after the recent short squeeze frenzy, though equites have staged a strong rally over the first half of February. Attention has already shifted away from that mania and has zeroed back on improving growth outlooks, which in turn are heating up inflation expectations. A holiday shorted week in the U.S. (markets closed on Monday) features key data on sales and prices, along with the minutes for the FOMC’s January meeting. In Europe, forward looking data will command a premium as the impacts of the lockdowns are gauged — the risk of a technical recession over Q4/Q1 is very high, though a quick and solid rebound is projected. In Asia, China and other Asian countries are on holiday for the Lunar New Year, although Japan’s first look at Q4 GDP will be of interest.


U.S. markets continued to assess the improving outlook on growth in early 2021, supported by stimulus expectations and an ultra-accommodative FOMC, along with widening vaccine distribution, and easing in virus cases and lockdowns. Those, however, are starting to spark inflation jitters thanks to the double whammy from the acceleration in the economy and the likelihood of additional liquidity. Treasury yields soared on Friday, extending the sell off that began in late September but took off in January after the Democrats took control of the government. The 30-year bond rate jumped to 2.0115% and the 10-year climbed to 1.208%, the highest since late February. The 10-year breakeven widened to 222 bps, the highest since June 2014. Meanwhile, Wall Street managed to calmly rally to yet more fresh highs and likely has room to run if this week’s real sector data are solid as expected.

The retail sales report (Wednesday) is one of the headliners this week and is expected to show a bounce in January thanks to the December stimulus payments, the reopenings of the economy after many cities mandated more strict shutdowns as the second wave of the virus surged in the fall, and optimism over vaccines. We’re forecasting a 0.9% pop in January retail sales for both the overall index and sales excluding autos, following respective December decreases of -0.7% and -1.4%. The Empire State (Tuesday) and the Philly Fed (Thursday) index will provide an important real time update as they are February reports. The Empire State gauge is expected to rise to 8.0 in February, which would be the highest since October, from a 7-month low of 3.5 in January. The Philly Fed index is seen falling to 20.0, but from an 11-month high of 26.5. These diffusion indexes should remain elevated as factory activity continues to ramp up. Meanwhile, industrial production (Wednesday) is projected to rise 0.3% in January, after the 1.6% December headline increase.

The inflation gauges of PPI (Wednesday) and trade prices (Thursday) will garner attention after the mixed messages last week where CPI rates were more tame than expected, while the price gauges in the consumer sentiment report climbed to multi-year highs. This week we expect benign PPI but strong increases in trade prices. Hefty energy-led gains in the export and import price could add to the worry about building inflation pressures. Import prices are estimated to rise 1.1% in January while a 1.0% gain is projected for export prices, following respective December gains of 0.9% and 1.1%. A big January boost from petroleum prices is seen, alongside the effects from the decline in the value of the dollar since Q2. Meanwhile, PPI should post a tame 0.2% increase overall and a 0.1% core increase. Like CPI, that may help assuage some fears.

A duo of housing reports should again show this sector remains a standout in the pandemic economy. Housing starts are expected to dip to a 1.600 mln pace in January, but that is from a 14-year high of 1.669 mln in December. And, strength in December permits, which are also at a 14-year high, auger for a strong Q1 rebound. Existing home sales in January are seen holding at December’s 6.760 mln, versus a 14-year high of 6.860 mln in October. The $309,800 median prices in December is just off the record peak of $313,100 in October. Finally, initial jobless claims for the week of February 13, which marks the BLS survey week, should remain elevated, though a -33k drop in the weekly pace to 760k is anticipated.

The FOMC minutes to the January 26, 27 meeting should continue to underscore the Fed’s commitment to maintaining its uber-accommodative stance. But the report will not break any new ground. Chair Powell emphasized the need for ongoing support from monetary policy in his comments on February 10 due to the negative impacts of the pandemic. That was in keeping with the tweaks in the January policy statement. One such was that the Fed’s acknowledgement that “the pace of the recovery in the economy and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.” The Fed removed the specific, though qualitative, time references in the December statement, likely due to the vaccine developments, that “The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” The FOMC also noted that the path of the economy will depend significantly on the course of the virus, but added, “including progress on vaccinations.” There will also be Fedspeak from a number of officials, though none will change their tune either. On tap are Bowman, George, Kaplan, Daly, Barkin, Rosengren, Brainard, and Bostic.

The earnings calendar slows down this week. Monday has Liberty Global. Tuesday brings Medtronic, HSBC, CVS, Zoetis, Palantir, Ecolab, Ringcentral, Agilent, AIG, American Waterworks, Occidental Petroleum, TransUnion, SolarEdge, Royal Caribbean, Black Knight, Intercontinental Hotels, Advance Auto Parts, and Allegion. Wednesday has Shopify, Baidu, Twilio, Analog Devices, Synopsys, Lloyds Banking, Nutrien, Hilton, Pioneer Natural Resources, Garmin, Entergy, DISH Network, Genuine Parts, Boston Beer, and SunPower. Thursday has Walmart, RBC, Applied Materials, Southern Company, Roku, Waste Management, Newmont, Marriot, TC Energy, Barrick Gold, ViacomCBS, Hormel Foods, ConEd, and Arista Networks. On Friday, Deere & Co, DTE Energy, and Magna International are due.

Canada: A relatively busy calendar is on tap in a holiday shortened week. Markets are closed Monday for Family Day, but Statistics Canada will release the December manufacturing report. We expect a 0.5% gain after the -0.6% decline in November. CPI (Wednesday) is anticipated to jump 0.5% in January (m/m, nsa) after the -0.2% decline in December, led by a big pop in gasoline prices. January also tends to be a month with a strong seasonal gain. The annual growth rate is seen accelerating to 1.0% in January from 0.7% in December (y/y, nsa). Retail sales (Friday) are projected to drop -2.6% in December after the 1.3% gain in November, while the ex-autos aggregate is expected to fall -3.0% after the 2.1% jump in November. Expanded shutdowns of the retail/hospitality sector should weigh on the December data. Existing home sales for January are expected to be released on Tuesday.


The Asian calendar is light this week. China, Hong Kong, and Taiwan remain on holiday early in the week for Lunar New Year celebrations. In Japan, the first look at Q4 GDP is due, along with trade and national CPI. Growth, trade, prices and employment data are on tap from the smaller economies. The only scheduled central bank meeting comes from Bank Indonesia, where a 25 bp cut to 3.50% for the 7-day reverse repo rate is expected.

Japan preliminary Q4 GDP (Monday) is expected to rise 10.0% (q/q, saar), that’s less than half of the 22.9% pace seen in Q3. The jump in exports in the quarter will be the main driver of growth expansion. Revised December industrial production is due Monday as well. The December tertiary industry index (Tuesday) is expected to fall -0.8% versus the -0.7% decline in November. The January trade report (Wednesday) is forecast to see the previous JPY 749.6 bln surplus flip to a JPY 800.0 bln deficit. December core machinery orders (Wednesday) likely fell -10.0% m/m after the 1.5% increase previously. January national CPI (Friday) is estimated to have warmed to -0.8% y/y from -1.2% overall, and to -0.7% y/y from -1.0% on a core basis.

Elsewhere in the region, India January trade (Monday) should see the deficit narrow slightly to $15.0 bln from $15.4 bln. January WPI (Monday) is forecast at 1.3% y/y from 1.2%. South Korea January PPI is due Friday. In Hong Kong, January unemployment (Thursday) is seen jumping to 7.0% from 6.6%. This would mark a new 16-year high. Covid related closures have been responsible for much of the recent unemployment increase. Thailand Q4 GDP (Monday) is penciled in contraction at a -5.0% y/y rate from -6.4%. Indonesia January trade surplus (Monday) is expected to narrow to $1.5 bln from $2.1 bln previously. Bank Indonesia meets Thursday, with a 25 bp cut expected, leaving a 3.50% setting for the 7-day reverse repo rate. BI cut rates a total of 125 basis points in 2020 to combat Covid-related economic slowing. Singapore January non-oil exports (Wednesday) are seen climbing to a 10.0% y/y clip from 6.8% in December.

In Australia, employment and the RBA minutes are the focus this week. The employment report (Thursday) is expected to show a 25k rise after the 50.0k gain in December. The unemployment rate is projected at 6.6%, unchanged from the 6.6% in December. The preliminary retail sales figure for January is due Friday, with a 3.0% gain projected following the -4.1% drop in December. The RBA minutes will be of interest — RBA Governor Lowe repeated that the cash rate will be maintained at 10bps for as long as necessary. Low for as long as needed remains firmly in place. Assistant RBA Governor Kent participates in a panel discussion on Wednesday. New Zealand’s thin calendar has Q4 PPI on Friday. Next week has the RBNZ (February 24) — no change to the 0.25% rate setting is anticipated for quite some time.


Eurozone: Germany’s strict lockdown has been extended, although with less than 160K active cases in a population of more than 80 million the states are itching to re-open schools, which are under their jurisdiction. In France, Spain and Italy, case numbers are much higher, but restrictions much less severe, with many shops open, and in Spain and Italy even cafes and restaurants allowed to serve during the day – with restrictions. Still, travel and hospitality industries are suffering and the risk of a technical recession over Q4/Q1 is very high At the same time developments are increasingly uneven, which will likely pose a major challenge to the ECB once activity bounces back.

For now, political developments in Italy are helping to keep intra-Eurozone spreads low. Former ECB head Draghi seems to have managed to get sufficient backing to form a government and the “Draghi-factor” clearly has strengthened market confidence not just in Italy’s recovery, but also the stability of the Eurozone as a whole. Still, ECB members will likely continue to sound dovish in the quest to slow the reflation story and the trend higher in yields.

This week’s economic calendar brings the first round of confidence indicators in the form of German ZEW and Eurozone PMI readings. Vaccine optimism picked up again over the past month and stock markets clocked new highs and against that background we expect German ZEW Investor Sentiment (Tuesday) to lift to 62.3 (median 60.0) from 61.8. Preliminary PMI readings (Friday), meanwhile, are likely to be more cautious thanks to the slow rollout of vaccination programs and the extension of virus restrictions. The Services PMI is expected to remain firmly in contraction territory, even if we expect a slight improvement – to 46.0 from 45.9. The Manufacturing PMI reading is seen falling back to 54.2 (median 54.4) from 54.8, which would leave the composite at 48.0, little changed from the 47.8 reading in February.

There is little else on the calendar, and none should change the overall outlook. Eurozone production and trade numbers for December may not attract too much attention and Eurozone Q4 GDP is likely to confirm a quarterly contraction in activity of -0.7% q/q, largely thanks to the return of virus-restrictions. Supply includes a German 2048 Bund sale (Wednesday).

U.K.: the UK’s Covid vaccination program has continued to prove both speedy and smooth in operation, which is coming close to having vaccinated 25% of the adult population, including almost the entirety of the most vulnerable groups. Downing Street reaffirmed last Friday that Prime Minister Johnson will be outlining a ‘road map’ out of societal restrictions on February 22. This was already a known diary entry, though nonetheless was a further aide memoire that the UK may be ahead of the curve in derestricting its domestic economy, even if tight international travel restrictions look likely remain in place for some time (with the aim of keeping new variants of SARS-Cov2 out). UK GDP and production data, covering Q4 and December, came in less worse than expected, though to little market impact at the time of release, being particularly backward looking from the perspective of market participants at the current juncture.

UK data calendar this week is highlighted by January inflation data (Wednesday), where the median expectations is for headline CPI to ebb back to a 0.5% y/y rate. This would fit BoE projections, with the central bank anticipating a sharp rise back toward the 2% target over the coming months, when base effects (caused by the impact of last year’s March-June lockdown) will drive y/y price comparisons higher. January retail sales are also due (Friday), where a 1% m/m contraction is expected.

Switzerland: The Swiss data calendar is quiet, highlighted only by trade data (Thursday).

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.

TickerRankCompanyPriceFair ValueDividend YieldBeta 3-YearSectorOverall Ratings Score
BIO1Bio-Rad Laboratories$662.35$616.02– 0.81Healthcare99
HEAR2Turtle Beach$34.10$31.51– 0.98Technology100
BTG3B2Gold$5.04$6.473.20%0.3Basic Materials98
KGC4Kinross Gold$7.38$8.891.60%0.25Basic Materials87
AVNW5Aviat Networks$54.05$45.45– 0.73Technology100
HVT6Haverty Furniture Cos$35.18$33.342.50%0.82Consumer Cyclical96$31.77$34.69– 0.91Consumer Cyclical99
HOLX8Hologic$82.98$107.53– 0.89Healthcare100
LAKE9Lakeland Industries$40.95$30.06– -0.18Consumer Cyclical100
JOUT10Johnson Outdoors$125.42$138.650.70%0.78Consumer Cyclical100
MLR11Miller Industries$40.91$42.481.80%0.74Consumer Cyclical95
LOGI12Logitech International$118.59$97.360.70%0.8Technology99
GLDD13Great Lakes Dredge & Dock$15.48$16.11– 0.84Industrials85
FN14Fabrinet$87.80$88.16– 1Technology97
STX15Seagate Technology$72.21$77.163.70%1Technology90
IRBT17iRobot$133.40$114.33– 0.99Technology99
CORT18Corcept Therapeutics$28.00$29.13– 0.8Healthcare99
TGT19Target$190.75$190.451.40%0.71Consumer Defensive66
DG20Dollar General$198.60$197.200.70%0.56Consumer Defensive49
TMO21Thermo Fisher Scientific$507.83$635.520.20%0.83Healthcare92
HLI22Houlihan Lokey$67.25$59.402.00%0.66Financial Services96
ICLR23Icon$210.52$256.25– 0.87Healthcare84
NEM24Newmont$58.94$75.802.70%0.33Basic Materials93
MTD27Mettler-Toledo Intl$1,220.66$1,325.40– 0.95Healthcare87
OLLI28Ollie’s Bargain Outlet$93.53$83.35– 0.91Consumer Defensive79
WST30West Pharmaceutical Servs$294.01$328.120.20%0.73Healthcare89
VIPS31Vipshop Holdings$33.09– – 0.63Consumer Cyclical100
NOMD32Nomad Foods$26.54$30.12– 0.48Consumer Defensive79
ADUS33Addus HomeCare$123.17$126.63– 0.75Healthcare93
A34Agilent Technologies$127.98$139.640.60%0.95Healthcare88
WDFC35WD-40$332.28$322.170.80%0.58Basic Materials71
BR37Broadridge Financial Soln$148.07$145.511.60%0.85Technology91
WPM39Wheaton Precious Metals$40.21$38.101.20%0.25Basic Materials68
SSTK40Shutterstock$86.00$71.691.00%0.72Communication Services91
HMSY41HMS Holdings$36.68$45.46– 0.59Healthcare85

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.

TickerCompanyDividend YieldMargin of SafetySectorBeta 3-YearDividends Ratings ScoreOverall Ratings Score
BIPBrookfield Infr Partners3.80%8%Utilities1.021912
BKHBlack Hills3.70%– Utilities0.938078
BUDAnheuser-Busch InBev2.30%– Consumer Defensive0.82270
CBSHCommerce Bancshares1.50%-19%Financial Services0.976041
CINFCincinnati Financial2.70%-17%Financial Services1.117973
DDDuPont de Nemours1.70%-6%Basic Materials1.17188
EMREmerson Electric2.40%2%Industrials1.197966
FRTFederal Realty Investment4.10%– Real Estate1.016541
GPCGenuine Parts3.20%23%Consumer Cyclical1.037330
HDHome Depot2.20%7%Consumer Cyclical1.048077
HRLHormel Foods2.00%1%Consumer Defensive0.446052
JNJJohnson & Johnson2.40%13%Healthcare0.667694
KOCoca-Cola3.20%1%Consumer Defensive0.717931
LOWLowe’s Companies1.40%11%Consumer Cyclical1.156689
MOAltria Group7.90%11%Consumer Defensive0.688184
NFGNational Fuel Gas4.10%– Energy0.75544
PGProcter & Gamble2.50%14%Consumer Defensive0.657282
PHParker Hannifin1.30%7%Industrials1.416784
SWKStanley Black & Decker1.60%17%Industrials1.448676
TAT&T7.20%22%Communication Services0.779751


TickerCompanyCategory GroupDividend YieldBeta 3-YearExpense Ratio3-Year Return
DNLWisdomTree Global ex-U.S. Quality Dividend Growth FundInternational Equity1.70%0.850.58%43.50%
NOBLProShares S&P 500 Dividend Aristocrats ETFU.S. Equity2.10%0.910.35%36.40%
SPHQInvesco S&P 500 Quality ETFU.S. Equity1.50%0.980.15%50.20%
VIGVanguard Dividend Appreciation Index Fund ETF SharesU.S. Equity1.90%0.90.06%46.50%

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
DOWDow5.40%1.33-1.60%– – 961
VZVerizon Communications4.60%0.52-19.90%-25.00%-22.40%6990
WBAWalgreens Boots Alliance3.80%0.8-16.30%-67.30%-74.50%7482
XOMExxon Mobil7.80%1.1-41.10%-79.40%-0.10%6472

Economic Data Calendar

We have a heavy slate of releases following the President’s Day holiday. We expect solid January retail sales gains with the start of stimulus deposits, while business inventories post a moderate December gain. We expect a further climb for industrial production in January, while housing starts and permits moderate from 14-year highs, and existing home sales oscillate below a 14-year high in October. We expect moderate January PPI gains, but hefty energy-led gains for the trade price indexes. We expect February gyrations in the Empire State and Philly Fed indexes around solid levels.

Week of February 15

The CBO released new budget projections on February 11 for the coming ten years, as typically occurs near the start of each calendar year, hence providing the baseline for this year’s legislative action. The estimates incorporate the CBO’s economic forecasts from February 1, which revealed massive upward revisions from their bleak assumptions last July. Despite the more rosy economic assumptions however, the CBO’s baseline projections are still notably weaker than our assumed growth trajectory, leaving deficit projections that we believe understate the revenue trajectory and overstate deficits.

The CBO now assumes a -$2,258 bln FY21 deficit, with outlay projections that leave a -12.0% contraction, following the massive FY20 CARES Act boost that left an outlay surge of 47.3%. The CBO assumes a 2.5% FY21 revenue gain, following the -1.2% FY20 drop. We assume a much larger 11.5% revenue gain, thanks both to faster economic growth and likely big capital gains tax payments in April. Our stronger revenue assumptions leave a FY21 deficit of “just” -$1,950 bln. The gap mostly reflects that we expect nominal GDP growth of 7.2% in 2021, versus the CBO’s assumed 5.6% gain, with respective “real” increases of 4.8% and 3.7%. The CBO assumes a restrained 1.9% 2021 rise for the chain price index, which also undershoots our 2.4% assumption. Available revenue data through January supports our more optimistic budget outlook, albeit even if our assumed budget gaps are still enormous.

Empire State/Philly Fed Index: 8.0/20.0

The Empire State index is assumed to rise to 8.0 in February from a 7-month low of 3.5 in January, versus a 20-month high of 17.2 last July. The Philly Fed index is seen falling to 20.0 in February from an 11-month high of 26.5. 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 combined with coronavirus vaccines should provide a lift into Q1. Producers continue to face remarkably lean inventories, and rebounding demand in many industries above pre-pandemic levels that should sustain production increases despite retail sector disruptions from virus outbreaks.

PPI/Core: 0.2%/0.1%

We expect a 0.2% January PPI headline rise with a 0.1% core price gain, following gains of 0.3% for the December headline and 0.1% for the core. As expected readings would result in a y/y headline PPI metric of 0.7%, down from 0.8% in December and November. We expect a 1.0% y/y rate for the core, down from 1.2% in December. A further rise in energy prices should boost the headline. The y/y headline PPI reading should climb to a peak in the 3.7% area in April due to hard comparisons, while the core y/y rate rises to a peak near 2.2% around May. Oil prices are rebounding after the early-Q4 pause thanks to a better supply-demand balance in the petroleum sector, and supply constraints for some sectors as factory sector activity continues to climb should provide support for the inflation indexes into Q1.

Retail/Ex-Auto Sales: 0.9%/0.9%

We expect a 0.9% January retail sales headline bounce with a 0.9% ex-autos increase, following respective December decreases of -0.7% and -1.4%. We expect a 5.4% bounce for the CPI gasoline index that should provide a boost to service station sales. Unit vehicle sales rose to 16.6 mln in January from 16.2 mln in December, after a restrained 15.7 mln pace in November. Sales were depressed by rising coronavirus restrictions through the holidays, but are being lifted into Q1 by stimulus deposits and vaccines. We expect continued strength in non-store sales, and a continuation of the rebound for sales of clothing, furniture, electronics, and appliances as we further reverse the Q2 hit. Real consumer spending is expected to fall at a -1.2% rate in Q1 after a 2.5% growth clip in Q4.

Industrial Production: 0.3%

Industrial production is projected to rise 0.3% in January, after the 1.6% December headline increase. We saw December gains of 0.9% for manufacturing, 1.6% for mining, and 6.2% for utilities. In January, we expect gains of 0.7% for manufacturing and 1.0% for mining, but with a -3.0% plunge for utilities in the face of mild weather. We expect the vehicle assembly rate to tick up to 10.8 mln in January from 10.7 mln in December, though assemblies are being disrupted by parts shortages with coronavirus restrictions. We saw a 0.1 mln trough pace in April, versus a 3.7 mln prior trough in January of 2009 that marked the start of the auto bankruptcies. Capacity utilization should rise to 74.8% from 74.5% in December. Industrial production expanded at an 8.4% clip in Q4, and we expect a 9.7% growth pace in Q1.

Business Inventories: 0.5%

Business inventories are estimated to rise 0.5% in December after a 0.5% November increase. Our forecast incorporates a 0.3% rise for factory inventories, alongside gains of 1.0% for retailers and 0.1% for wholesalers as seen in the advance indicators report. Sales should grow 0.9% in December, after a -0.1% dip in November. As-expected readings would result in the I/S ratio maintaining a 1.32 level for a fifth month, versus an all-time high of 1.67 in April and a 1.47 peak from the last recession in both March of 2009 and December of 2008. Inventories in the Q4 GDP report showed a $44.6 bln accumulation rate after a -$3.7 bln liquidation in Q3 and a record -$287.0 bln pace in Q2. We expect a $123 bln accumulation rate in Q1. Inventories were already unwinding pre-COVID-19 as earlier tariff front running reversed course before the big Q2 hit, leaving room for the start of a protracted inventory rebound in Q4 of 2020.

Housing Starts: 1.600 mln

Housing starts are expected to dip to a 1.600 mln pace from a 14-year high of 1.669 mln in December. Permits are expected to ease to 1.640 mln from a 14-year high of 1.704 mln in December. All the housing measures have rebounded sharply since Q2, with recent 14-year highs for new and existing home sales, a 12-year high for the MBA purchase index in mid-January, 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 1.600 mln average for starts in Q1 that outpaces the 14-year high 1.592 mln pace in Q4, and a 1.432 mln pace in Q3. We expect a 1.640 mln average for permits in Q1 that outpaces the 14-year high 1.629 mln average in Q4, and a 1.490 mln prior high in Q4 of 2019.

Initial Jobless Claims: 760k

Initial jobless claims for the week of February 13, which marks the BLS survey week, should remain elevated, though we assume a -33k drop in the weekly pace to 760k, after a -19k dip to 793k from 812k. The usual seasonal rise in NSA claims to a peak in January likely lifted the reported SA data, given the unusually high claims level and the switch since September to additive seasonal factors. We likely also saw a lift from expanded coronavirus restrictions. Claims are expected to average 738k in February, after averages of 850k in January, 825k in December, and 749k in November. The estimated 760k BLS survey week reading follows prior survey week figures of 914k in January, 892k in December, and 748k in November. We assume a 400k February payroll rise after the 49k January gain.

Continuing claims fell by -145k to 4,545k in the week of January 30, following an upwardly revised 4,690k figure. We expect continuing claims to fall -195k to the 4,350k area for the week ending on February 6. Though rising coronavirus restrictions are likely prompting some stalling in the continuing claims downtrend, we expect resumed bigger declines later in Q1. Continuing claims likely fell about -625k between the January and February BLS survey weeks. We saw prior drops of -537k in January, -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.

Import/Export Price Index: 1.1%/1.0%

Import prices are estimated to rise 1.1% in January, with a 1.0% export price rise, after December gains of 0.9% imports and 1.1% for exports. We expect a big January boost from petroleum prices, alongside support from a decline in the value of the dollar since Q2. Ex-petroleum import prices are expected to grow 0.4%, while ex-agriculture export prices grow 0.9%. Oil prices rose between April and August, as major OPEC+ production cuts and reduced drilling activity brought balance back to the petroleum sector, though prices moderated between August and October before a bounce since then with further production agreements from OPEC. The rebound in global production has been associated with bottlenecks and shortages in some industries that have raised some prices, though weakness in aggregate demand has limited upside inflation pressure.

Existing Home Sales: 6.760 mln

We expect existing home sales in January to remain at December’s 6.760 mln, versus a 14-year high of 6.860 mln in October. Pending home sales fell -0.3% in December, as this measure continues to unwind the all-time high in August. The MBA purchase index rose 4.7% in January after gains of 2.6% in December and 2.7% in November, but is falling about -3% in February. The two measures are consistent with a still-elevated sales pace into 2021. Sales are supply constrained, as the months’ supply of homes have posted a 5-month string of new all-time lows. 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 rise to $310,000 from $309,800 in December and a $313,100 current all-time high in October. We expect a rise in the y/y median price gain to a still-lofty 16.5% from 12.9% in December. In Q4, we saw an average sales pace of 6.777 mln, after a 6.137 mln rate in Q3, and we expect a strong 6.767 mln pace in Q1.

 15 Feb  United States Presidents Day – U.S. Markets Closed
 15 Feb 11:00 Colombia GDP Y/Y  Q4    -9.0%
 16 Feb 08:30 United States Empire State Index  FEB 8.0 5.7 3.5
 16 Feb 11:10 Washington Fed’s Bowman speaks at ABA’s Conference for Community Bankers
 16 Feb 12:30 Kansas City Fed’s George discusses the economy
 16 Feb 13:00 Dallas Fed’s Kaplan discusses the economy
 16 Feb 15:00 San Francisco Fed’s Daly discusses the economy and inequality
 16 Feb 16:00 United States Net Long-Term Security Purchases  DEC $30.0B  $149.2B
 16 Feb 16:00 United States Total Net TIC Flows  DEC $30.0B  $214.1B
 17 Feb 07:00 United States MBA Mortgage Applications 02/12    -4.1%
 17 Feb 08:30 United States Retail Sales  JAN 0.8% 0.9% -0.7%
 17 Feb 08:30 United States Retail Sales ex-Auto  JAN 0.9% 0.9% -1.4%
 17 Feb 08:30 United States PPI  JAN 0.2% 0.4% 0.3%
 17 Feb 08:30 United States PPI Y/Y  JAN 0.7%  0.8%
 17 Feb 08:30 United States PPI ex-Food & Energy  JAN 0.1% 0.2% 0.1%
 17 Feb 08:30 United States PPI ex-Food & Energy Y/Y  JAN 1.0%  1.2%
 17 Feb 08:55 United States Redbook 02/13    -2.5%
 17 Feb 09:00 Richmond Fed’s Barkin speaks in a virtual discussion
 17 Feb 09:15 Boston Fed’s Rosengren speaks in a panel discussion
 17 Feb 09:15 United States Industrial Production  JAN 0.3% 0.4% 1.6%
 17 Feb 09:15 United States Capacity Utilization  JAN 74.8% 74.8% 74.5%
 17 Feb 10:00 United States Business Inventories  DEC 0.5% 0.5% 0.5%
 17 Feb 10:00 United States NAHB Housing Mkt Index  FEB 83  83
 17 Feb 10:00 Colombia Trade Balance USD  DEC   -$1442M
 17 Feb 13:00 United States Treasury Auctions 20-Yr Bonds
 17 Feb 14:00 Washington FOMC Minutes for Jan 28-29 Meeting
 18 Feb 08:00 Washington Fed’s Brainard speaks at IFF Climate Finance Summit
 18 Feb 08:30 United States Housing Starts  JAN 1.600M 1.658M 1.669M
 18 Feb 08:30 United States Building Permits  JAN 1.640M 1.704M R
 18 Feb 08:30 United States Housing Completions  JAN 1.360M  1.417M
 18 Feb 08:30 United States Philadelphia Fed Index  FEB 20.0 20.0 26.5
 18 Feb 08:30 United States Export Price Index  JAN 1.0% 0.6% 1.1%
 18 Feb 08:30 United States Import Price Index  JAN 1.1% 1.0% 0.9%
 18 Feb 08:30 United States Import Price Index ex-Petro  JAN 0.4%  0.4%
 18 Feb 08:30 United States Initial Claims 02/13  760K 775K 793K
 18 Feb 08:30 United States Continuing Jobless Claims 02/06  4,350K  4,545K
 18 Feb 09:45 United States Bloomberg Consumer Comfort Index 02/14    44.9
 18 Feb 10:00 Atlanta Fed’s Bostic discusses educational inequality
 18 Feb 10:30 United States EIA Natural Gas Stocks 02/12    -171B
 18 Feb 11:00 United States Treasury Announces 7-Year Notes
 18 Feb 11:00 United States Treasury Announces 2-Year FRNs Reopen
 18 Feb 11:00 United States Treasury Announces 2-Year Notes
 18 Feb 11:00 United States Treasury Announces 5-Year Notes
 18 Feb 11:00 United States EIA Crude Oil Stocks 02/12    -6.7M
 18 Feb 11:00 United States EIA Gasoline Stocks 02/12    4.3M
 18 Feb 11:00 United States EIA Distillate Stocks 02/12    -1.7M
 18 Feb 16:30 United States M2 – Week Ended 02/08    $3.0B
 19 Feb 08:00 Richmond Fed’s Barkin speaks on panel
 19 Feb 09:45 United States Markit PMI – Manufacturing – Flash  FEB   59.2
 19 Feb 09:45 United States Markit PMI – Services – Flash  FEB   58.3
 19 Feb 10:00 United States Existing Home Sales  JAN 6.760M 6.650M 6.760M
 19 Feb 11:00 Boston Fed’s Rosengren speaks at Yale Economic Symposium
 19 Feb 13:00 United States Treasury Auctions 30-Year TIPS
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