This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Alarming Demographic Trends
Wells Fargo Securities
Dec. 29: The U.S. population increased 0.4% in 2020, to 329 million, marking the lowest growth rate since at least 1900. With a falling birth rate and an aging population, overall growth has slowed over the past five years. In fact, 2020’s projection will likely close out the slowest decade of population growth in the nation’s history. Stalling population growth could have major implications for potential economic output in the longer term. While these estimates precede and are collected independently from the 2020 decennial census, they provide useful insight into national and regional population trends.
Sixteen states saw growth pick up over the year, and 34 states are growing. Residents continued to flock to the West (+0.5%) and the South (+0.8%), which saw the largest gain of the Census regions. The South added just over 976,000 residents in 2020, with Texas (+1.3%), South Carolina (+1.2%), and Florida (+1.1%) posting the fastest increases and each ranking among the top 10 fastest-growing states. In the West, Idaho (+2.1%), Arizona (1.8%), Nevada (+1.5%), and Utah (1.5%) contributed nearly three-quarters of the region’s 354,000 population gain and saw the healthiest growth rates in the country. An affordability migration away from high-cost urban centers is helping fuel population growth in these regions.
—Mark Vitner, Charles Dougherty, Nicole Cervi
Previewing December Jobs Data
Commentary & Analysis
Maria Fiorini Ramirez
Dec. 28: Friday, Jan. 8, delivers the December employment report, along with November wholesale inventories and November consumer credit. The jobs data are tougher than usual to predict, with complicating factors including sizeable holiday-related seasonal adjustment that may distort outcomes, as patterns are anything but normal at the moment. Other tough-to-assess factors include the degree of pandemic-related softness in the service sector, and the speed at which underlying gains are slowing as the initial post-lockdown bounce fades.
With those caveats in mind, expectations concerning December nonfarm payrolls are widely scattered (the overall range is currently -175K to +200K), with very early medians of roughly +60K for the total and +75K for private payrolls. The unemployment rate is seen remaining near the previous 6.7%, the average workweek is generally expected to remain at 34.8 hours, and the median forecast for average hourly earnings is for a 0.2% month-to-month gains.
Investors, Beware Complacency
Weekly Technical Review
Dec. 28: Investors truly believe that markets are a discounting mechanism and that the stock market is now telling them that 2021 is going to be a good year for the economy. This conclusion is easy to reach if one believes vaccinations will proceed without a hiccup and herd immunity will be achieved by mid-2021. But the majority of investors are wrong at important turning points, which is why the majority of investors are bullish as the market peaks and bearish when it bottoms. Measures of investment sentiment show that investors are currently wildly bullish, so the risk is that they are too complacent about the near-term risk of a Perfect Covid-19 Storm and how smoothly the vaccines will be distributed in coming months. If this assessment is accurate, the stock market could be vulnerable to a quick, sharp correction, as investors are confronted with a less rosy perspective. If the stock market experiences a correction in January, Treasury yields will fall as bond prices rise. Gold, silver, and gold stocks will decline and the dollar will bounce.
Personal Savings Rate Soars
Telemus Special Market Commentary
Dec. 28: The Federal Reserve Bank of New York compiled a useful analysis in October, examining what happened with the first round of stimulus payments that were issued this past spring. In summarizing their analysis, roughly one-third was saved, one-third was spent, and one-third was used to pay down debt. The New York Fed also surveyed where further rounds of direct payments might be allocated. Respondents indicated that a greater percentage, roughly 45%, of any future stimulus would be saved. Since the pandemic began, the personal savings rate has accelerated. Prior to 2020, Americans had been saving between 7% and 8% of their income. The savings rate spiked to 33.7% in April, and while trending down, remains elevated at 13.6% as of October. We expect a meaningful portion of the latest round of direct payments to be saved, further strengthening the financial position of the average consumer.
Georgia (Election) on Our Mind
Cumberland Advisors Market Commentary
Dec. 28: As we enter 2021, we are very focused on the Jan. 5 Senate runoffs in Georgia. A Democratic victory in both races puts that party in control of both houses of Congress, along with a new Democratic administration led by President-elect Biden. Our view is that this outcome would lead to more spending—in greater amounts and on a faster pace than if the Republicans hold the Senate, which they can do with a Republican outcome in either race. We think bond market participants will start to discount increased spending, and perhaps a higher inflation rate, and that may cause yields to rise. We believe this will happen even with a Republican Senate, although at a slower pace. President-elect Biden still has good relationships with senators who were in office when he was a senator more than 12 years ago, and those relationships should foster some measure of greater cooperation. We think we’ll see rates back to where they were at the end of last year; but certainly, halfway between where they were then and where they are now is a reasonable approximation of where we think yields will be midyear.
—John R. Mousseau
A Brighter Outlook for Tin
Ahead of the Herd
Northern Venture Group
Dec. 23: Tin isn’t the most exciting metal, but it will play an important role in developing a new economy, reliant on green energy, electric vehicles, and advanced technologies like 5G, the Internet of Things, and artificial intelligence. For such a small market, tin has an impressive array of current and potential uses, putting it in the same league as silver, as a metal essential to modern electronics. Its primary use in tin-lead solder practically guarantees tin will enjoy steady demand for years, maybe even decades to come. This more than makes up for tin’s declining usage in kitchen foil and metal beverage containers.
This year, the tin price took a hit from the pandemic, but stormed back, gaining 45% since a mid-March low. When global economic growth resumes, following the rollout of vaccines, demand for tin and other industrial metals will surely pick up. When we factor in current and future supply shortages predicted by the experts, tin looks increasingly like a metal that forward-looking resource investors should have on their radar.
—Richard (Rick) Mills
China economy grows in 2020 as rebound from virus gains – CTV News
China eked out 2.3% economic growth in 2020, likely becoming the only major economy to expand as shops and factories reopened relatively early from a shutdown to fight the coronavirus while the United States, Japan and Europe struggled with rising infections.
Growth in the three months ending in December rose to 6.5% over a year earlier as consumers returned to shopping malls, restaurants and cinemas, official data showed Monday. That was up from the previous quarter’s 4.9% and stronger than many forecasters expected.
In early 2020, activity contracted by 6.8% in the first quarter as the ruling Communist Party took the then-unprecedented step of shutting down most of its economy to fight the virus. The following quarter, China became the first major country to grow again with a 3.2% expansion after the party declared victory over the virus in March and allowed factories, shops and offices to reopen.
Restaurants are filling up while cinemas and retailers struggle to lure customers back. Crowds are thin at shopping malls, where guards check visitors for signs of the disease’s tell-tale fever.
Domestic tourism is reviving, though authorities have urged the public to stay home during the Lunar New Year holiday in February, normally the busiest travel season, in response to a spate of new infections in some Chinese cities.
Exports have been boosted by demand for Chinese-made masks and other medical goods.
The growing momentum “reflected improving private consumption expenditure as well as buoyant net exports,” said Rajiv Biswas of IHS Markit in a report. He said China is likely to be the only major economy to grow in 2020 while developed countries and most major emerging markets were in recession.
The economy “recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics said in a statement. It said the ruling party’s development goals were “accomplished better than expectation” but gave no details.
2020 was China’s weakest growth in decades and below 1990’s 3.9% following the crackdown on the Tiananmen Square pro-democracy movement, which led to China’s international isolation.
Despite growth for the year, “it is too early to conclude that this is a full recovery,” said Iris Pang of ING in a report. “External demand has not yet fully recovered. This is a big hurdle.”
Exporters and high-tech manufacturers face uncertainty about how President-elect Joseph Biden will handle conflicts with Beijing over trade, technology and security. His predecessor, Donald Trump, hurt exporters by hiking tariffs on Chinese goods and manufacturers including telecom equipment giant Huawei by imposing curbs on access to U.S. components and technology.
“We expect the newly elected U.S. government will continue most of the current policies on China, at least for the first quarter,” Pang said.
The International Monetary Fund and private sector forecasters expect economic growth to rise further this year to above 8%.
China’s quick recovery brought it closer to matching the United States in economic output.
Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75% the size of the $20.8 trillion forecast by the IMF for the U.S. economy, which is expected to shrink by 4.3% from 2019. The IMF estimates China will be about 90% of the size of the U.S. economy by 2025, though with more than four times as many people average income will be lower.
Exports rose 3.6% last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.
Retail spending contracted by 3.9% over 2019 but gained 4.6% in December over a year earlier as demand revived. Consumer spending recovered to above the previous year’s levels in the quarter ending in September.
Online sales of consumer goods rose 14.8% as millions of families who were ordered to stay home shifted to buying groceries and clothing on the internet.
Factory output rose 2.8% over 2019. Activity accelerated toward the end of the year. Production rose 7.3% in December.
Despite travel controls imposed for some areas after new cases flared this month most of the country is unaffected.
Still, the government’s appeal to the public to avoid traditional Lunar New Year gatherings and travel might dent spending on tourism, gifts and restaurants.
Other activity might increase, however, if farms, factories and traders keep operating over the holiday, said Chaoping Zhu of JP Morgan Asset Management in a report.
“Unusually high growth rates in this quarter are likely to be seen,” said Zhu.
ECB's latest stimulus expected to have little impact on euro zone economy – Reuters poll – Cape Breton Post
By Richa Rebello
BENGALURU (Reuters) – The European Central Bank’s new policy package will have little effect on the euro zone’s coronavirus-ravaged economy, according to the forecasts of a Reuters poll of economists, who nearly halved their outlook for first-quarter growth.
Despite the ECB’s decision to top up its pandemic emergency purchases by half a trillion euros to 1.85 trillion euros and extend the programme for nine months, the bloc’s economic outlook remains bleak.
The Reuters poll consensus of over 80 economists forecast the euro zone economy shrank 2.5% last quarter after expanding 12.5% in the third quater and was expected to grow 0.6% this quarter, nearly half the 1.1% predicted a month ago.
It was then expected to expand 2.3%, 1.9% and 1.0% in the second, third and fourth quarters, largely unchanged from last month’s forecasts collected just before the ECB introduced more stimulus.
Over 70% of economists, or 28 of 39 who replied to an additional question, said the ECB’s latest policy moves would have little impact on the euro zone economy. The others said it would provide a significant boost.
“Interest rates are already so low and policy is ultra-loose, so for now, monetary policy cannot impact investment or consumer demand. Thus we do not think the ECB can influence the economy strongly at this time,” said Christoph Weil, senior economist at Commerzbank.
“We expect a bitter couple of months. Lockdowns will dampen the economy and we expect falling GDP in the last quarter of 2020 and in the first quarter of this year. So technically a recession”.
Graphic: Reuters Poll – Euro zone economic growth and inflation outlook: https://fingfx.thomsonreuters.com/gfx/polling/rlgvdgleepo/Euro%20zone%20economic%20outlook.PNG
Of the participants in the Jan. 11-15 survey, over 25% expected the euro zone – where growth plumbed to an historic low in the first half of 2020 – to have again entered a technical recession, defined as two consecutive quarters of contraction.
On an annualised basis, the economy was expected to have shrunk 7.3% in 2020, roughly in line with the last poll, but for this year, the median was downgraded to 4.5% from 5.0% last month. For 2022, the growth forecast was upgraded to 3.9% from 3.5%.
“The start of the year continues to bring bad news for Europe as the health situation deteriorates. With lockdowns already being extenin several countries, short-term risks to the economic outlook are clearly skewed to the downside, especially as the vaccination roll-out is still slow,” said Angel Talavera, head of Europe economics at Oxford Economics.
“The new and more transmissible variants of the virus mean a further deterioration could happen very quickly.”
Over 70% of respondents, or 30 of 42, who replied to a separate extra question said the economy would return to pre-crisis levels within two years, including six who said within a year. The others said it would be more than two years.
Graphic: Reuters Poll – Euro zone economy and the European Central Bank’s policy outlook: https://fingfx.thomsonreuters.com/gfx/polling/xegpbemwgvq/Reuters%20Poll%20-%20Euro%20zone%20and%20ECB%20policy%20outlook%20-%20January%202021.PNG
The two largest euro zone economies were expected to grow much slower in 2021 compared with expectations in October. Germany was forecast to grow 3.7%, down from 4.6%, and the outlook for France was downgraded to 5.9% from 6.9%.
Euro zone inflation, which remained in negative territory for five straight months last year, was expected to remain below the ECB’s target of just under 2%, averaging 0.9% in 2021 and 1.3% in 2022.
A slim majority, over 52% of economists, or 21 of 40 who answered a separate question, said a significant pick-up in inflation was likely. Seventeen said it would remain around the same as 2020 and two said deflation was more likely.
“If history is any guide, any too-high expectations of inflation can be shattered. But we have very supportive fiscal policy and a number of structural factors that could support higher inflation a little further down the road,” said Florian Hense, senior Europe economist at Berenberg.
(For other stories from the Reuters global economic poll:)
(Reporting by Richa Rebello; Polling by Sujith Pai and Swathi Nair; editing by Jonathan Cable and Larry King)
China's economy grows 2.3% in 2020 as recovery quickens – CNN
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