Europe appears to be in the midst of an economic double-dip, with new COVID-19 lockdowns slowing economic activity. With the virus controlled, China continues to expand. With the virus not controlled, the U.S. continues to expand. The concern in the U.S. is that activity & mobility have become too quick for virus control (especially heading into the winter holidays). We continue to deal with a non-linear series. With a tested vaccine being produced now, U.S. policymakers are feeling pressure for additional (near-term) lockdowns, if hospitals become full and the medical workforce approaches exhaustion.
“As Americans prepare for a Thanksgiving celebration, a quick look up north shows Canada’s struggles with COVID-19 following the country’s Thanksgiving holiday on Oct. 12. In the days and weeks following Canada’s Thanksgiving, coronavirus case numbers immediately started to rise. From November 12-19, Canada reported three of its five highest single-day totals in the entire year, all within the span of a week.” (KREM)
Even though the U.S. economy has some momentum now (eg, single-unit housing, mfg orders) it is starting to move uphill (weekly jobless claims at 742,000 last week, retail sales slowing to 0.3% m/m in October).
The lockdowns do appear to be slowing the virus case count in Europe. But with a notable cost. “The French economy is set to contract 9-10% this year, depending on how long the current coronavirus lockdown lasts, the INSEE official statistics agency said on Tuesday. Depending on whether the lockdown is extended into December, and if so for how long, the economy would contract between 2.5% and 6% in the final quarter of 2020 from the previous three months, INSEE estimated.” (Reuters)
In China, where COVID-19 is controlled, industrial production rose +6.9% y/y in October, with retail sales up +4.3%.
Bottom line: looking forward to 2021 the story remains one of pent-up demand for services. We could see 10%+ growth in the U.S. by 2Q of 2021. Vaccines mean the pandemic will end. It’s getting from here to there that’s the challenge.
Smooth policy support from D.C. would certainly help. But last week did not look smooth. The U.S. Treasury has requested a number of Fed programs cease at the end of 2020, and the funding be returned. The Fed has indicated they would prefer the programs remain in place. The incoming U.S. government could move to reinstate emergency programs, so the current decision is not set in stone. But this is another reminder it will be more difficult – given other moving parts in D.C. – to find a consensus on how to deploy the fiscal & monetary power of the country going forward. One hope would be that a Congress presented with “savings” from 2020 programs might be more willing to authorize 2021 programs that meet immediate needs (eg, unemployment, rental eviction, foreclosure, businesses in Lockdown 2.0, etc). We’re staying tuned.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
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