Weekly Market Pulse - Week ending December 24, 2020

Market developments

Equities:

The week was kicked off by news of a more transmissible mutated variant of the coronavirus that had been spreading in the UK. Markets quickly calmed down as health officials including Dr. Fauci have said there is no reason to believe the vaccines wouldn’t work. U.S. Congress was finally able to pass the US$900B pandemic stimulus package and now awaits President Trump’s signature. Meanwhile a Brexit trade deal has also been struck just a week before the deadline and must pass through UK and EU parliaments. The S&P 500 fell 0.17%. The S&P/TSX Composite rose 0.51%.

Fixed income:

Concerns of the new coronavirus strain overshadowed the stimulus package. The U.S. Treasury 10-year yield fell 2 basis points, ending the week at 0.92%. The Government of Canada 10-year yield fell 3 basis points ending the week at 0.72%.

Commodities:

The vaccine rally in the reflationary commodities was halted on reports of the new coronavirus strain. Oil fell 1.63% and copper fell 1.93%. Gold prices were unchanged.

Performance (price return)

Performance - Price return

As of December 24, 2020

Macro developments

Canada – GDP rises in October

GDP rose 0.4% in October, following the 0.8% increase in September. The growth was driven by the services-producing sector which rose 0.5%. Meanwhile the goods-producing industry rose just 0.1%, dragged by manufacturing and accommodation and food services. Statistics Canada approximates output grew 0.4% in November as a preliminary estimate.

U.S. – Durable goods orders rise; Personal income spending decline; Consumer confidence drags on virus resurgence

Durable goods new orders rose 0.9% for a seventh consecutive month in November, following the 1.8% increase in October. Transportation equipment led the gain with orders rising 1.9%. Ex-transportation, new orders rose 0.4%

Personal income fell 1.1% in November, following the 0.6% decline in October. Compensation rose during the period driven by an increase in wages and salaries in service-producing industries. However, there was notable decrease in proprietors’ income reflecting a decline in Payment Protection Program loans to businesses as well as decreasing social benefits as Federal pandemic assistance programs wind down.

Spending also fell 0.4% for the first time in six months, following the 0.3% increase in October. Spending fell within both goods and services. Within goods, spending towards clothing and footwear and motor vehicles was partially offset by a rise in food and beverages. Within services, spending fell in food services and accommodations and utilities.

The Conference Board Consumer Confidence Index declined to 88.6 in December from 92.9. The Present Situation Index fell sharply to 90.3 from 105.3 while the Expectations Index rose to 87.5 from 84.3. The resurgence of COVID-19 remains a drag on confidence. Consumer vacation expectations fell while their intentions to purchase appliances rose.

International – Brexit deal

The UK and EU were able to come to an agreement, clinching out a trade deal just a week before what would otherwise be “Hard Brexit”. The tentative deal now must go through both UK and EU parliaments to go into effect.

Quick look ahead

The Weekly Market Pulse will be on pause for the holidays and will return January 11, 2021. Happy Holidays!

Canada – Manufacturing PMI (January 4); Labour force survey (January 8)

After the holidays we will get some key releases in Canada. We will get an update on the Manufacturing PMI reading for December which has shown a strong manufacturing recovery. The Labour Force Survey will also be closely watched as the recovery in the labour market has slowed in recent months and there is also the tail risk of the resurgence of the coronavirus as well as renewed lockdowns.

U.S. – FOMC minutes and Factory orders (January 6); Nonfarm payrolls (January 8)

The FOMC minutes will be dissected to better understand the Fed’s usage of “substantial further progress” as well as the usual focus of any hints of forward guidance.

November factory orders are expected to continue to gain, with market consensus of 0.8%. The main focus will be on the nonfarm payroll number for December. The labour market recovery is slowing and recently has shown weakness given the rise in weekly jobless claims. Market consensus is forecasting a gain of just 100K.

International – Japan industrial production (December 27); China PMI (January 5); Eurozone retail sales and Germany factory orders (January 7); Germany industrial production (January 8)

Japan industrial production is expected to eke out a gain of 0.6% in November according to market consensus. In the new year, the first major release will be an update on Chinese PMI readings. Business activity has held up strong even as cases surged internationally.

Over in Europe, we have eurozone retail sales which are expected to fall 3% November. In Germany, the economy has shown more resilience and data is expected to fare better. Germany factory orders expected to decline 1.2% while industrial production expected to continue to recover in November.

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