A solid week for the markets as Pfizer’s vaccine distribution kicked into gear and Moderna’s was approved. And we shouldn’t forget the Chinese and Russian options. As you can see below, these are being picked up in much of the developing world.
On the economic front the news was downbeat in the U.S. as renewed lockdowns/restrictions had their predictable impact. The key reports:
Weekly Unemployment Claims
Another 885,000 Americans filed for first-time unemployment benefits last week, the highest level in three months.
US retail sales declined in November by the most in seven months. Sales fell 1.1% last month from October, the second consecutive monthly decline.
As you would expect, travel plans are being changed. Hotel occupancy fell once again this week.
At least in California people are still driving despite the more strident demands to stay home – unstoppable force meets immovable object?
Housing – A Bright Spot
What stands out on the positive side includes housing – Home building is booming.
Policy Leans Against the Headwinds
Against this backdrop both the Fed and Congress made the news.
First, the Fed met on Tuesday and Wednesday. Not much was expected and they didn’t disappoint. No change in rates and no change in their asset purchase structure. About the only thing they reiterated was the fact that they ‘really really’ promise not to tighten policy until things are back on a solid footing. This is clear by the dot plot (chart below) that shows they don’t think they will hike rates until the next election.
Chairman Powell’s comment below basically captures their view:
‘It’s going to take some time… We’ve been having very long expansions in the last several decades. The old model was inflation would come along and the Fed would tighten and we’d have a recession. Now inflation has been low and we haven’t had that dynamic and the result has been three of the four largest expansions in recorded history.
We’re thinking that this could be another long expansion. What we’re saying is we’re going to keep policy highly accommodative until the expansion is well down the tracks, and we’re not going to preemptively raise rates until we see inflation actually reaching 2%, and being on track to exceed 2%.
That’s a very strong commitment and we think that’s the right place to be.’
Then there is Congress. It is looking more and more likely that we’ll see another fiscal package in the next few days. Leaks and rumors abound – Greg Valliere does a good job of capturing the situation, at least as it stands now:
“THERE’S A REASON WHY CONGRESS has a 19% approval rating; that reason is on full display this week — an inability to move quickly when the country demands it. A pandemic aid bill will pass, but not quite yet, which means people who desperately need aid may not get it before Christmas.
A $900 BILLION PACKAGE OF ASSISTANCE is finally coming into focus. Fed Chairman Jerome Powell and many economists believe it isn’t enough, but it’s more generous than we anticipated earlier this week. There will be government checks of $600 or $700, plus unemployment benefits of $300 per week.
OTHER KEY PROVISIONS will include about $300 billion for small business, including about $257 for the Payroll Protection Program; $25 billion for rental assistance, including aid for landlords; $80 billion for schools and universities; about $16 billion for vaccine distribution, testing and tracking.
THE MEASURE WILL NOT INCLUDE money for state and local governments, although there’s a drive to “backdoor” aid with $90 billion to the Federal Emergency Management Agency (FEMA). There also isn’t money for liability protection to protect against lawsuits. The need to act on these two issues makes another bill — in February — increasingly likely, especially if jobless benefits expire by early spring, which would necessitate more funding.”
Charts We Found Interesting
1. The first Covid-19 shots have been given to more than 1.1 million people in four countries, according to data collected by Bloomberg. The chart below shows how the first round of vaccines are being distributed in the U.S.
2. The vaccines obviously can’t come soon enough.
3. The good news is that key countries have seen a meaningful improvement. Once again, Japan is simply on a different page than everyone else.
4. Science works at a different speed today.
5. There is a lot of talk about how super low interest rates will fuel inflation in 2021 or 2022. At least in Europe, they really haven’t seen inflation above 2% despite years of low (or negative) rates.
6. And of course, Japan is the deflationary poster child. Prices fell almost 1% this last month despite the Bank of Japan turning into the largest holder of Japanese equities in the world.
7. During recessions/bear markets investors build up a lot cash reserves. During the subsequent recovery this cash is reinvested. Cash holdings are still far from being back to normal.
8. So far it is a dry year in California. The reservoir situation is a mixed bag, but in general they aren’t in terrible shape yet.
Have a good weekend.
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