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Economics Recap (Details below)Better (or higher) than expected:
- JOLTS report for Nov: 6.527M vs. 6.450M est
- Import Prices for Dec: +0.9% vs. +0.7% est
- Export Prices for Dec: +1.1% vs. +0.6% est
- Industrial Production for Dec: +1.6% vs. +0.5% est
- Capacity Utilization for Dec: 74.5% vs. 73.6% est
- CPI for Dec: +0.4% vs. +0.4% est
- Core CPI for Dec: +0.1% vs. +0.1% est
- Business Inventories for Nov: +0.5% vs. +0.5% est
- NFIB Small Business Optimism Index for Dec: 95.9 vs. 100.2 est
- Treasury Budget for Dec: -$143.6B vs. -$143.5B est
- Initial (weekly) Jobless Claims: 965k vs. 789k est
- PPI for Dec: +0.3% vs. +0.4% est
- Core PPI for Dec: +0.1% vs. +0.2% est
- Retail Sales for Dec: -0.7% vs. -0.2% est
- University of Michigan Consumer Sentiment for Jan: 79.2 vs. 79.5 est
Employment trends stall
The Employment Trends Index (ETI) was practically unchanged in December, following seven consecutive gains, as the improvement in labor market conditions stalled at yearend. Three of its eight components made negative contributions, led by more initial jobless claims. The deterioration in the ETI comes on the heels of the first decline in nonfarm payrolls since April, as the surge in COVID cases weighed heavily on the leisure and hospitality industry. The Conference Board noted that "it appears unlikely that the labor market will resume its recovery over the next few months." This raises the risk of a double-dip recession in early 2021, but also increases the odds of more fiscal stimulus from the incoming Biden Administration.
Small business optimism falls, job openings dip by smaller amount than expectedThe National Federation of Independent Business (NFIB) Small Business Optimism Index for December fell to 95.9 from November's 101.4 level, compared to the Bloomberg estimate of a decrease to 100.2. The index fell below its average value since 1973 of 98 as nine of the ten index components declined and only one improved. The uncertainty index, the percent of the owners thinking it's a good time to expand, sales expectations, and earnings trends all decreased, while current inventories increased. The report added that, "This month’s drop in small business optimism is historically very large and most of the decline was due to the outlook of sales and business conditions in 2021, and small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation." On the jobs picture, plans to increase employment also declined.
The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 6.53 million jobs were available to be filled in November, versus forecasts calling for 6.45 million jobs, and down from October's downwardly-revised 6.63 million figure. The report showed the hiring rate remained at October's 4.2% rate, but separations rose to 3.8% from the prior month's 3.6% pace.
LNG prices skyrocket. JKM prices for LNG in northeast Asia are shooting through the roof. Cold weather and higher demand in China and Asia have JKM prices for February delivery well above $21/MMBtu, while individual spot cargoes have traded in the high $30s/MMBtu, breaking all-time record highs. The cost to rent LNG tankers is also breaking records.
OPEC cuts could help shale. The jump in crude oil prices could finally bring positive cash flow to much of the U.S. shale industry, according to Rystad Energy. The firm says cash flow could increase by 32% this year.
OPEC+ compliance slips to just 75%. OPEC+ group’s compliance with the oil production cuts fell to 75% in December 2020—one of the lowest levels since the pact was enacted in May 2020, tanker tracking firm Petro-Logistics said on Tuesday.
Kansas City Fed: shale needs $56 WTI. According to the latest survey from the Kansas City Federal Reserve, oil and gas firms reported that oil prices needed to be on average $56 per barrel for a substantial increase in drilling to occur, and natural gas prices needed to be $3.28 per Btu. The industry’s expectations for future activity improved.
The Consumer Price Index (CPI) rose 0.4% month-over-month (m/m) in December, matching the Bloomberg consensus estimate, and compared to November's unrevised 0.2% increase. The core rate, which strips out food and energy, ticked 0.1% higher m/m, in line with expectations and just shy of November's unadjusted 0.2% gain. Y/Y, prices were 1.4% higher for the headline rate, modestly above forecasts projecting a 1.3% increase and north of November's unadjusted 1.2% rise. The core rate was up 1.6% y/y, matching projections and November's unrevised increase.
The MBA Mortgage Application Index jumped by 16.7% last week, following the prior week's 1.7% gain. The sharp increase came as the Refinance Index spiked 20.1% and the Purchase Index grew 8.0%. The noticeable rise in mortgage activity has come amid the recent jump in interest rates, which continued last week as the average 30-year mortgage rate increased 2 basis points (bps) to 2.88%.
Advance retail sales for December fell 0.7% month-over-month (m/m), versus the Bloomberg forecast of a flat reading and following November's negatively-adjusted 1.4% decline from a previously-reported 1.1% drop. Last month's sales ex-autos dropped 1.4% m/m, compared to expectations of a 0.2% decrease and November's figure was unfavorably revised to a 1.3% decline from a 0.9% fall. Sales ex-autos and gas were down 2.1% m/m, compared to estimates of a 0.3% decline, and November's reading was adjusted lower to a 1.3% decrease from a 0.8% drop. The control group, a figure used to calculate GDP, declined 1.9% m/m, versus projections of a 0.1% increase and November's downwardly-adjusted 1.1% decrease from a 0.5% decline.
The Producer Price Index (PPI) showed prices at the wholesale level in December rose 0.3% m/m, below forecasts of a 0.4% gain and compared to November's unrevised 0.1% increase. The core rate, which excludes food and energy, increased 0.1% m/m, south of estimates of a 0.2% rise and matching November's unadjusted increase. Y/Y, the headline rate was 0.8% higher, in line with projections to match the prior month's unadjusted gain. The core PPI increased 1.2% y/y last month, below estimates of a 1.3% increase, and compared to November's unrevised 1.4% rise.