Risk rally pauses for breath as US rates and the dollar rise
- Equities were slightly lower over the week, weighed on by rising uncertainty over the timing of the return to economic “normality” as Covid infection rates rose rapidly around the globe.
- The rapid rise US treasury yields and accompanying strength in USD (fuelled in part by what we see as somewhat premature speculation on the timing of QE tapering by the Federal Reserve) also weighed on sentiment.
US data quite mixed; manufacturing sector outperforming services by a wide margin
- US initial jobless claims surged +965,000 for the week ending 9 January (prior: +784,000, consensus: 789,000), the highest weekly record since last August. Continuing claims increased to 5,271k (prior: 5,072k). This comes in the same week that those eligible received a full week of support from the additional $900bn COVID relief package approved in December. Many of the recent layoffs have been in the leisure and hospitality sectors, with recent payrolls data reporting 140,000 jobs lost overall last month.
- US retail sales fell -0.7% in December, against expectations of a flat reading (November: -1.4%). Declines were seen across the board; electronics stores -4.9%, restaurants and bars -4.5%, food and beverage stores -1.4% and furniture stores -0.6%. Online trade slumped -5.8% following the holiday season. This comes amid a spike in virus cases and a worsening labour market.
- There are some reasons for optimism as the additional $900bn pandemic relief programme is distributed and President-elect Joe Biden announced his $1.9trn fiscal stimulus plan to combat the virus and provide further direct relief to households and small businesses.
- US industrial production was strong in December, up +1.6% over the month (consensus: +0.5%). Utilities output increased 6.2% in December and manufacturing output increased 0.9%. This left manufacturing output down just -2.8% over the year. Capacity utilisation improved slightly from 73.4% to 74.5% over the month.