Coronavirus was in the news again, breaking the bullish momentum of the markets. However, equity markets remain very BULLISH. As seen in the chart below of the S&P 500, the trend remains very strong.
|US Dollar Index||96.117||0.05%||0.051||96.226||96.038||Strong Bull|
The announcement of a lockout in Austria and the rise of positive cases in several other European countries, including Germany, led to many moves on Friday, particularly on the sharply fallen euro, breaking the USD 1.13 threshold in the process, the lowest since July 2020.
In the debt market, Covid’s fears’ revival put bond yields under pressure because central banks may have to pedal on their plans to reduce their support policies. Over ten years, the Measure delivered -0.34% (-6 points) and the T Band 1.53% (-6 points).
Key Drivers for the Week of Nov. 22nd, 2021
TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.
- Rising Covid Cases in Europe, CA, and North US
- Rising Inflation & Prices
- Christmas Shopping Season & Black Friday
- Earnings Reports
- Monday, November 22 – Existing Home Sales (October) 10AM EST
- Wednesday, November 24 – GDP (QoQ) (Q3) 8:30AM EST
- Wednesday, November 24 – Fed Minutes 2PM EST
Inflation & Debt
Speaking of debt, the US House passed a 1.7 trillion dollar spending bill last week. It is unlikely to be passed in the Senate at this time. Independent budget analysis has reported that a large part of the bill is unfounded and likely to add over $400 billion to the national debt. This would likely increase the rate of rising inflation.
Speaking of inflation, the odds of the Fed raising rates by at least half a percentage point in the next year are 83% according to interest-rate futures. This percentage was just 22% in September. Despite having a stable dollar as its primary mandate, the Fed’s inability to combat inflation is threatening its credibility.
I don’t think the Federal Reserve cares about rising inflation hurting average Americans. As a matter of fact, I think it has gone full “woke” and is focused on “climate change” rather than money. Just this week the St. Louis Fed tweeted “A Thanksgiving dinner serving of poultry costs $1.42. A soybean-based dinner serving with the same amount of calories costs 66 cents and provides almost twice as much protein.”
The good news for the Biden administration is that Powell’s term ends in February, and there’s a lot of talk in DC about Powell being replaced by Lael Brainard. Although this may provide a political “fresh start” for the Fed and the Biden administration, Brainard will still inherit the same inflationary environment as Powell and have the same options.
Although some call for more drastic measures to combat inflation, virtually no one believes that Brainard will make a significant shift in Powell’s Fed steering. El-Erian claims that if confidence continues to slide institutionally, it will weaken Powell’s forward policy guidance at the Fed and undermine the Biden administration’s political agenda.
Turning to holiday sales and Black Friday
Mastercard predicts that total retail sales will rise by 10% during Thanksgiving week compared to last year and 12.2% in 2019. Mastercard expects total retail sales to increase by 10% this Thanksgiving week compared to the previous year and 12.2% in 2019.
The October sales increase was 1.7%, up from 0.9% in September. Current estimates show holiday sales will grow by 7-9% in 2021, considering supply chain constraints. Although a strong Christmas season will help support the case for a more robust economic system, I wonder if this sales forecast will be lowered, as we have seen with many other expectations this year.
This past week’s statistics were thin, though thin. In the United States, consumers spent more than expected, and industrial production accelerated beyond expectations in October.
This Tuesday will mark the release of the November flash PMI for the major economies. These measure business confidence and are therefore critical indicators of economic activity. In the US, a new estimate of Q3 GDP, the latest durable goods orders, and PCE inflation will be a busy schedule for next Thursday’s session.
The lousy news is piling up on oil markets and weighing the trend. Following the recent revision of global demand forecasts by the International Energy Agency and the US threat, operators must now face the consequences of potential new conservatism in Europe following Austria’s decision to redefine its population. So oil prices took a decline this week, with Brent crude falling to nearly $78 per barrel, compared to $75.8 for US reference.
This week, I was weighing the greenback on the industrial metals segment, which fell, like oil, despite China’s better-than-expected statistics on industrial production and retail sales in October.
In terms of cryptocurrencies, the market appears to be feverish, falling 10% this week, bringing the total market capitalization to $2.5 trillion. Meanwhile, Bitcoin is losing more than $10,000 from last week’s high, suggesting a potentially exciting year-end for digital assets.
Copper is trading at USD 9450 per metric ton, while nickel has fallen to USD 19200. Gold has stabilized around USD 1860 but has not benefited from the renewed nerves of the equity markets.
In soft commodities, lumber is back in the news. Floods in western Canada are blocking the flow of lumber to the United States, causing the price of building materials to rise by nearly 40% in five days.