Daily Comment (December 4, 2020)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Good morning and happy Employment Friday!  We examine the data in detail below, but the quick take is that the data was weaker than expected.  U.S. equity futures are moving higher this morning.  We lead off with pandemic news.  OPEC comes next, followed by an update on China.  The EU and Brexit are the next up.  We close with a roundup of economic news.  Being Friday, we have a new Asset Allocation Weekly, but due to the holiday, the podcast and chart book that usually accompany the report won’t be available this week.  Starting in January, in a bid to shorten this report, we will no longer publish the AAW at the bottom of the Daily.  It will be available only as a stand-alone report but will be linked within the Daily Comment.  Let’s get to it!

COVID-19:  The number of reported cases is 65,323,809 with 1,508,906 fatalities.  In the U.S., there are 14,147,754 confirmed cases with 276,401 deaths.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high frequency data on various factors.  U.S. infection levels, hospitalizations, and deaths hit record highs yesterday.  The Rt data is showing some improvement; 10 states now have a reading of <1, meaning a decline in the spread of the virus.  With respect to the virus, the worst state is Oregon, and the best is Iowa.


OPEC:  OPEC+ was unable to hold the line on production restrictions.  Quotas will be expanded by 0.5 mbpd starting in January.  We expected a contentious meeting, but we also thought the cartel would hold the line on output.  However, the fact that the Saudis are not moving to recapture market share is a favorable sign, and prices have worked higher despite the news.

China:  Here is the latest.

Brexit and the EU:  Brexit negotiations are getting testy, and Poland is backing down.

Economics and Policy:  Movies may never be the same.

  • The stall in the labor force in November is confirmed with a report from the WSJ on how the pandemic is reducing employment for older workers and women. At the same time, retailers are paying bonuses to their workers to keep them around for the holiday rush.
  • Although talks continue on another round of stimulus, the usual sticking points remain. The GOP loathes to help state and local governments, while Democrats don’t want to give businesses liability protection.  Still, moderates in Congress are pressing the leadership to make a deal.
  • There are some experiences that fade by generation. For example, baby boomers remember snow tires, drive-in movies, carburetors, etc.  We may be on the way to ending the movie theater experience.  Warner Brothers, a studio owned by AT&T (T, USD, 29.23), announced it will not release movies first to theaters and then to streaming.  Instead, the releases will be simultaneous.  Although the policy may change when the pandemic fades, it may also become permanent, which would likely end public movie theaters.
  • We are in a La Niña year, which usually means mild winters and dry conditions for crops. This weather event has boosted grain prices.
  • Chris Waller was confirmed by the Senate, but just barely. He made it by one vote, 48 to 47, with no support from Democrats.  This is a sad commentary.  Waller is about as mainstream as one can find, and by all accounts he will be a reliable dove.  Clearly some of this is partisanship; the Democrats will lose the chance to fill a spot on the FOMC.  At the same time, it is hard to see how they could argue that Waller is unqualified.  The fact that no Democrat voted for him, even though some did in committee in February, suggests that either (a) this is pure hardball politics, or (b) the “Overton window” has now shifted so much that a mainstream dove isn’t good enough for the extreme wings of either party.  We fully expect the Fed to become increasingly politicized over time and eventually become a funding arm of the Treasury.  We would view the partisan nature of this vote as further evidence of this trend.

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