December 09, 2021
What's Happening Today - Dec. 7
Basking in the warm green glow of my stock ticker this morning is better than a sunny vacation… right? Markets have responded very positively over the past couple of days as concerns about the latest variant are easing. GlaxoSmithKline reports that its antibody-based C-19 therapy is effective against omicron according to new data from early studies. Also, additional reports from South Africa suggest that omicron could result in ‘less severe’ illness than prior waves but also could be more transmissible.
Up here in Canada, goods trade data is out this morning and we’re expecting a surplus of C$2.1 billion, which is basically in line with the market, but we doubt that shifts the needle much ahead of the Bank of Canada statement tomorrow.
Down south, the trade balance for October is out this AM, and even with the deficit continuing to expand to historic levels, it’s safe to say that the market won’t care. In fact, the market hasn’t cared about the US trade balance for decades. It wasn’t always this way. Back in the 1980s, the most important data point on the US economic calendar was the trade balance, and the passthrough signal to markets was clear and strong. Nowadays, that honour goes to either nonfarm payrolls or CPI. So why has the trade balance release lost so much of its importance? A few reasons that we can think of:
- This isn’t the 1970s/80s - capital flows are much larger, and therefore, much more important than trade flows. And capital is generally going to flow into US assets (which is what happens when you have the reserve currency).
- The large current account deficit is a mirage largely because it doesn’t fully capture the value of soft exports like tech know-how. How else do you explain a primary income surplus over the past several decades despite increasingly larger current account deficits.
In other US news, Schumer says that he expects that the Senate will pass ‘Build Back Better’ legislation (aka the ‘reconciliation’ package) before Christmas. Reports are that the bill that is filed is not expected to include a hike to the debt ceiling; which is expected to be hit sometime around December 15th. Instead, one option under consideration is including the hike as part of the defence bill.
Over in the EU, markets are currently shrugging off the better than expected final GDP data for Quarter 3 (which came in at +3.9% year-over-year) as recent European Central Bank speak has made it clear that accommodative policy will stick around for a while. On the vaccines, EU governments have become more strict than other G-10 regimes when it comes to mandates though it’s less clear if that’s affecting price action at this point. German industrial output rose more than expected in October but supply bottlenecks remain problematic, while British consumer spending picked up in November, boosted by earlier-than-usual Christmas shopping.
Asia-Pacific markets closed higher led by tech and travel-related stocks, as easing worries over the economic impact of the new Omicron coronavirus variant boosted sentiment. On the data front, China’s exports grew faster than expected in November to hit a record on external demand, while Japan’s household spending falls further with the coronavirus drag on consumer spending. The Chinese administration threatened to take “firm countermeasures” against the US if the latter follows through with the diplomatic boycott of the Beijing Winter Games next February. Not quite Moscow 1980/LA 1984 since athletes will still be allowed to participate. But when taken with Chinese firms de-listing, the Hong Kong/Taiwan risks, and the looming expiration of the trade deal, this is clearly an escalation in tensions.
Oil prices rose as Iran nuclear talks hit roadblocks, delaying the return of Iranian crude supplies.
As always give us a call if you’d like to chat, or if you’d like to get together for a portfolio review.