Insights

WuRevue Week Ending 2/12/2021

 

Top News:

02/08: Biden said “international rules” would inform his dealings with China, a relationship he characterized as “extreme competition.”  Secretary Yellen made the case for the administration’s $1.9T recovery bill as a means to achieve full employment next year.  China has formalized antitrust rules designed to rein in the threat of Big Techs in a one-party state.

 

02/09: Touted as one of Yellen’s preferred measures of the US labor market, the latest JOLTS report confirmed jobs recovery has stalled, due to continuing weakness in the leisure and hospitality sectors.  Optimism among US small businesses continued to deteriorate in January, as future expectations were stymied by an uncertain pandemic outlook.

 

02/10: Chairman Powell reiterated the loose monetary policy will be maintained in order to achieve the Fed’s twin goals of maximum employment and a sustained 2% inflation over time.  Notwithstanding some concerns, January’s data showed all quiet on the inflationary front as core CPI decelerated to 1.4%. 

 

02/11: Seesawing investor sentiment resulted from the “fear of missing out,” juxtaposed against a less than sanguine weekly unemployment claims report that pointed to a struggling labor market.

 

02/12: Consumer sentiment sank to a six-month low in early February, due to a decline in expectations for future financial security, particularly amongst lower-income households.  Indicative of the severity of economic distress, UK saw its 2020 GDP shrink by 9.9%, the worst since 1709.

 

 

Heard on the Street:

“Sure, equity investors like the idea of more fiscal stimulus as long as bond yields and the Fed do their part not to upset the balance. However, the rate at which the bond markets has been pushing yields higher in the past week should be seen as a warning that the bond vigilantes may have been in hibernation for a long time, but their day in the sun may be coming quicker than expected.”

— Steven Ricchiuto, U.S. chief economist at Mizuho Securities, as quoted by MarketWatch on 02/09/2021

 

“Although there are frothy segments of the market that are detached from fundamentals, we do not see bubble conditions more broadly.  Instead, we see a stock market that is trading at a premium to historical valuations—partly justified by low rates, a shift in sector composition toward higher-valued growth sectors, supportive monetary and fiscal policy, as well as cheaper access to markets (i.e., secular decline in commissions and fund fees).”

— Keith Lerner, CFRA’s chief strategist, as quoted by MarketWatch on 02/09/2021

 

 

Longer Game:

As cash use dwindles, central banks are pushing ahead with digital currency.  One such leader is China, which is testing different pilot rollouts, including digital “red envelopes” worth $6MM in total for the Lunar New Year.

 

 

Bonus:

Can too much stimulus have unintended consequences?  Not in the immediate term— however, the 10-year Treasury breakeven rate, a barometer of inflation expectations, has crept up to its highest level since 2014.

 

As Asian countries and communities celebrate the Lunar New Year, what can one expect from the Year of the Ox?