December 14, 2020

Weekly Market Commentary December 7th to December 11th 2020

Consumer Credit kicked off a light week of economic data, increasing by $7.2B, well-below the anticipated increase of $17B. The surprise was attributable to revolving credit declining by $10B in the third quarter, and a record $76B in second quarter. This is likely driven by debt consolidation with home refinancing that reached $1T in the third quarter. Overall, the likely monthly savings in lower cost financing provides a potential tailwind to consumer spending moving forward.

The most noteworthy release of the week was the Consumer Price Index for November on Wednesday. The headline/all-items index rose 0.2% M-o-M, and up 1.2% on a Y-o-Y basis. The index for items less food and energy rose 1.6% on the year, and unchanged from the prior month. The below-target inflation levels should enable the Federal Reserve to continue its expansionary monetary policies.

Producer Price Inflation was reported on Thursday. Similar to the CPI release, PPI barely rose from the prior month with final demand increasing 0.1%, after a rise of 0.3% in October and the smallest gain since April. While the pandemic has raised prices of some goods because of supply constraints, it has hurt demand for others keeping inflation inflation below target. Millions of Americans are either underemployed or out of work, limiting wage inflation.

After a slight decline to open the week on Monday, equity markets closed at another all-time high on Tuesday. However, as talks toward another round of pandemic relief saw another week come and go, major indexes closed the week modestly lower. The S&P 500 declined about 1% for the week to 3,633. The Nasdaq declined about 0.7% this week, ending at a 12,377. And the Dow Jones Industrial Average closed down 0.6% to 30,046. The 10-Year U.S. Treasury yield closed at 0.84%.

Key economic releases next week include Capacity Utilization, regional manufacturing indices, Retail Sales, and the Federal Reserve press conference on Wednesday.