Archives of “January 2021” month

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The first look at fourth quarter US GDP highlights a busy economic calendar

  
  Analysis

What’s on the economic calendar today?

The first look at Q4 GDP is due at the bottom of the hour and the consensus is an annualized rate of +4.2%. There are considerable divergences among economists with a range of 2.7% to 6.8%.
The key swing factor will be personal consumption which rose at a 41.0% annualized pace in Q2. It’s expected to rise another 3.1%.
At the same time as the GDP report we get:
  • Weekly US initial jobless claims
  • US December advance goods trade balance
  • December US wholesale inventories
  • Canadian December building permits
Basically all the news will hit at the same time today and then later we get a US 7-year auction.
Outside of the US, the ECB’s Schnable speaks at 1715 GMT on a panel. A report yesterday suggested that markets were underestimating the chance of a rate cut.

China likely to avoid setting 2021 GDP target over debt concerns – report

  
  Analysis

Reuters reports on the matter

The report says that China will drop setting a GDP target for a second straight year on concerns that maintaining one could encourage provincial economies to ramp up debt, citing policy sources familiar with the matter.
However, no decision has been made yet on whether that will officially be the case. Adding that China may instead again use employment and other measures as implicit GDP targets.
The sources also say that government advisers who are calling to scrap the target again this year appear to be gaining the upper hand. A source is reported as saying:

“We will not set an explicit target but in reality there will be a target. We will not emphasise the importance of achieving said target at all costs.”

On inflation though, China is expected to set a target of around 3% this year as compared to the 3.5% target last year (actual inflation was 2.5%).

Nikkei 225 closes lower by 1.53% at 28,197.42

  
Analysis, Global Indices

Asian equities dragged lower on sour mood in Wall Street yesterday

Nikkei 28-01
The Hang Seng is down 2.0% and the Shanghai Composite is down 1.6% in a sea of red for Asian equities today. The softer risk mood is also reflected in US futures still, with S&P 500 futures down 0.3% and Nasdaq futures down 0.5%.
It is looking to be a hiccup for equities to wrap up January trading, despite the Fed reaffirming that they will stick with their current policy stance for quite some time yet.
The bond market may be reacting to some hints of risk aversion but 10-year Treasury yields slipping under 1% also tells the story that the Fed put is well and truly alive.
I would argue any further retracement here still represents a “healthy” correction in the big picture and dip buyers are surely waiting in the wings to step back in.
The whole GameStop saga is also bringing some unwanted attention to the stock market in general and that perhaps is messing with investor appetite for now.

FOMC – Powell will err on the side of removing accommodation too slowly rather than too quickly #AnirudhSethi

  
  Analysis
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The Federal Open Market Committee statement and Powell’s press conference on Wednesday US time were both non-eventful.

Responses are coming in, this a quick summary on what Oxford Economics have to say:
Powell signalled the FOMC would rather risk erring on the side of removing accommodation too slowly then removing it too rapidly, for several reasons:
  • heightened uncertainty around the pandemic remains
  • the economy and labour market are far from full recovery
  • new policy framework is asymmetrically dovish
  • policymakers want to avoid ‘taper tantrum’ that would send long-term rates higher

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Oxford Economics forecast is for a ‘gradual’ QE taper to being in 2022. but by the end of that year, the Fed’s open market account will remain very elevated.
The Federal Open Market Committee statement and Powell's press conference on Wednesday US time were both non-eventful.

FOMC responses coming in – “no surprises” #AnirudhSethi

  
  Analysis
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A summary of the main point Lloyds make about Wednesday’s Federal Open Market Committee

  • policy update contained no surprises.
  • left interest rates and its asset purchase target unchanged
  •  The Fed continues to promise that it stands ready to offer more support to the economy if warranted but there seems to be growing confidence that more action may not be needed. Nevertheless. any tightenng in monetary policy is still probably a very long way away and markets don’t expect an interest rate hike until 2024. 
More:
  • Recent US economic data has actually been mixed
  • the signs are that the vaccine rollout is increasing the Fed’s confidence that economic conditions will improve significantly later this year
  • Hopes of further fiscal stimulus from the Biden Administration probably have provided a further boost
On the ‘tapering’ of QE question, which some officials at the Fed have indicated may commence in 2021, Lloyds remind that Powell has been quick to “stamp on this idea” and reiterated the point again at his presser.
A summary of the main point Lloyds make about Wednesday's Federal Open Market Committee 

Facebook and Tesla shares fall hard after earnings

  
Analysis, US Market

MSFT was a warning

Facebook earnings were also strong — but not as strong as MSFT or NFLX — and shares have responded with an afterhours fall to $257 from $274.
Tesla shows what happens when you miss. The company earned 80-cents compared to $1.03 expected and, even with a modest revenue beat, shares are down over 10% after hours.
MSFT was a warning
That’s not a pretty picture.
There’s also Whirlpool, which makes things like washers and dryers which is down to $203 from $216 after a decent beat. The company commentary so far is upbeat, with the CEO highlighting the strong housing market in statement.

The Federal Reserve statement from the January 2021 meeting

  
  Analysis

FOMC statement from January 2021.

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Implementation Note issued January 27, 2021

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