Economic Outlook – 15 November 2020


  • Small business confidence was unchanged in October, although business owners are clearly concerned about the future path of economic policy. The uncertainty index jumped to 98.0 in October, near a record high. The election uncertainty will fade, but the recent spike in COVID cases and what that is likely to mean for customer engagement is not going away anytime soon. Staring down a potentially long difficult winter, businesses are showing signs of hunkering down a bit. Expectations for growth have been scaled back as well as capital spending, hiring and borrowing plans.
  • Despite the Federal Reserve’s new-found tolerance for faster inflation, consumer prices were flat in October. Food and energy prices both edged higher. Excluding food and energy, however, core prices were unchanged from September held back by core services. For years now, the combination of outsourcing to countries with lower labor cost and soft commodity price pressure have meant there was very little pricing power for producers and retailers when it comes to the price of goods. But after months of robust consumer spending on goods, it seems consumer goods inflation is running hotter than it has in years. It is still historically low at just 1.2%, but that is the fastest inflation for this category since 2012. Overall, inflation remains modest as prices continue to unwind from pandemic effects.
  • First time unemployment claims slipped to 709K last week, which was lower than expected and an improvement from the prior week’s figure of 757K. But, the number of individuals who continued to file PUA claims (e.g. part-time and gig workers) rose by 101K during the week ending 24 October and the total amount of emergency claims (PEUC) also rose by 160K. In total, there were 21,157,000 individuals who filed some sort of unemployment claim during the week of 24 October. As such, the labor market, although improving, is far from fixed. This is a key vulnerability for the pace of the recovery especially in the potential absence of a major new stimulus bill.
  • Weekly credit and debit card spending have started to lose momentum and passenger throughput at US airports has fallen modestly for two consecutive weeks. The fourth quarter got off to a strong start, and right now it is tracking a 3.7% (annualized) pace, but risks appear tilted to the downside.
  • Data from Bank of America shows that global equity funds received record inflows of $44.5 billion in the week ending 11 November. The US received $32.5 billion, the second highest amount on record, though Japan and Europe experienced outflows. Two battered sectors, energy and financials, saw substantial inflows of around $1.4 billion each. High yield attracted $3.3 billion on the week.
  • Little movement has been seen on Capitol Hill this week toward resolving a standoff over the size and scope of additional pandemic relief. Speaker of the House of Representatives Nancy Pelosi (D-CA) said on Thursday that any package needs to reach at least $2.2 trillion in new spending while Senate Majority Leader Mitch McConnell (R-KY) continues to advocate for a more targeted package worth around $500 billion. Unless the two sides come to an agreement before the end of the year, a number of pandemic-related programs will lapse on 31 December, including funding for some of the US Federal Reserve’s programs to backstop business and municipalities, as well as extended jobless benefits.
  • Most of the major benchmarks added to the previous week’s sharp gains, bolstered by positive vaccine news. All of the major indexes touched all-time intraday highs in early trading Monday but surrendered much of their gains at midweek, before rebounding again on Friday. The narrow Dow Jones Industrial Average and the smaller-cap benchmarks performed best, while slower-growing value shares easily outperformed their growth counterparts. Relatedly, the technology-heavy Nasdaq Composite Index lagged, and tech shares within the S&P 500 Index trailed most other sectors. The small real estate and materials sectors were also weak, while energy shares recorded solid gains.


  • Britain’s GDP rose 15.5% in the third quarter, falling slightly short of expectations but still setting a record. Monthly GDP came in at 1.1% for September, following on from the disappointing August figure; it is clear that the economy was stalling well before the second lockdown. The UK economy is now around 8.2% below the level it was in February of this year. Looking at particular industries, accommodation, food services and the arts have all continued to underperform, with more than half of businesses in these sectors experiencing a decrease in turnover, compared with 45.0% across all industries. It is notable that professional, scientific and technical activities across all industries saw the largest positive contribution, as legal activities, accounting and advertising saw strong growth after a muted August.
  • At the Financial Times’ Global Boardroom event, Bank of England Governor Andrew Bailey acknowledged that there was still a “huge gap” between where the UK economy stands today and its pre-pandemic size, but he asserted that a potentially effective coronavirus vaccine would help lift uncertainty surrounding the economic outlook. Bailey also advocated remaining cautious about the vaccine “because there’s still a long way to go in trialing, in production and distribution, and putting all this into action.”
  • British employers are advertising the most jobs since early March, though sectors such as hospitality and leisure remain hard-hit by the COVID pandemic. The Recruitment and Employment Confederation, a trade body, said 1.36 million jobs were being actively advertised in the first week of November, with the strongest recovery in construction, logistics and food processing. Britain’s Office for National Statistics said on Tuesday the number of job vacancies rose by 146,000 to 525,000 in the three months to October, but this was still more than a third lower than a year before.
  • The cost of British finance minister Rishi Sunak’s decision to extend his COVID furlough programme until March should be “quite a bit lower” than the roughly £40 billion spent so far. Asked about a possible further £40 billion cost, Beth Russell, director-general for tax and welfare at the Treasury, said the number of claims were likely to be lower than earlier in 2020. “We wouldn’t expect it to be as high as that. Given the restrictions in the spring, and the restrictions that we are now expecting for the next few months, we would expect it to be quite a bit lower than that,” she told parliament’s Public Accounts Committee.


  • At the ECB’s annual symposium, President Christine Lagarde signaled that the central bank would expand its pandemic emergency purchase program (PEPP), which has bought more than €640 billion of bonds, and its targeted longer-term refinancing operations (TLTROs), which have lent almost €1.5 trillion to banks at accommodating rates, by year-end. “All options are on the table,” but the PEPP and TLTROs had “proven their effectiveness in the current environment” and were “therefore likely to remain the main tools for adjusting our monetary policy,” she said. Her comments appeared to rule out any further reduction in the ECB’s deposit rate, currently at -0.5%. “There are reasons why interest rates had not been reduced in the past,” ECB Executive Board Member Isabel Schnabel said in an interview with CNBC, “but policymakers would have to check whether the reasons were still relevant in December.” The ECB had raised expectations at its October meeting that policymakers would inject more stimulus into the economy to prevent a double-dip recession.
  • The European Parliament and European national governments reached a budget agreement this week that clears the way for the funding of the €1.8 trillion recovery package which will offer a lifeline to heavily indebted European countries hit hard by the pandemic.
  • Shares in Europe rallied with global markets on encouraging news regarding the development of a vaccine to combat the novel coronavirus, although surging coronavirus infections and lockdowns in key European economies capped the gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.13% higher. Major European indexes also posted strong gains: Germany’s DAX Index climbed 4.78%, France’s CAC 40 surged 7.45%, and Italy’s FTSE MIB added 6.21%.


  • Chinese equity investors received unwelcome news after the government released a draft of antitrust guidelines aimed at curbing the power of the country’s leading internet-based platforms. The proposed antitrust laws from the State Administration for Market Regulation were the second recent setback for China’s top internet companies after financial regulators abruptly pulled the initial public offering of fintech company Ant Group on 3 November. The uptick in regulatory actions affecting China’s online companies comes as authorities worldwide have raised concerns over the power and influence of digital platforms and their anticompetitive practices, though China is the first to issue new rules for its internet industry.
  • US-China relations suffered their latest setback on Thursday, when outgoing President Trump announced an executive order prohibiting Americans from investing in Chinese firms that his administration claims have ties to the country’s military. Under the order, US investors are banned from trading securities of companies named by the Defense Department as having links to China’s military effective 11 January 2021, though it gives investors until next November to divest their holdings. The list of prohibited companies includes prominent state-backed companies such as China Mobile and China Telecom, whose US-listed shares fell sharply in US trading on Friday.
  • Chinese stocks declined slightly for the week as unfavorable macro news outweighed generally positive corporate earnings. The Shanghai Composite Index shed 0.1%, while the large-cap CSI Index ended down 0.6%. In credit markets, the yield on China’s 10-year sovereign bond increased by six basis points to end at 3.28%, as solid monthly trade data underscored the strong post-pandemic recovery. Corporate bonds sold off following a default by state-owned Yongcheng Coal & Electricity, an event that proved disruptive to China’s money markets and led the country’s central bank to inject liquidity into the financial system. Foreign flows into China’s bond market slowed in October following an especially strong third quarter, which recorded inflows of $21 billion for each month. In currency trading, the renminbi stayed broadly unchanged and ended at 6.610 against the US dollar.

Sources: T. Rowe Price, Reuters, MFS Investment Management, TD Economics, Wells Fargo, Handelsbanken Capital Markets, M. Cassar Derjavets.