It’s a short week as the U.S. is celebrating Thanksgiving on Thursday. A number of retailers, such as Walmart and Target, have chosen to close their stores during the holidays due to continuously high COVID-19 cases in the U.S.
New daily cases in the States have now peaked at 195,000, doubling in less than three weeks. A number of states have imposed restrictions on movement to contain the spread. For instance, California will establish a night-time curfew this week and is potentially going into a strict lockdown. These restrictions increase the likelihood of double dip recession in the U.S. after a historic GDP growth of 33.1% in Q3 that was supported by the monetary and fiscal stimulus. Without the support real GDP would have contracted at 6% annual rate in Q3, as per Rosenberg Research. A number of data points will be published this week in the U.S. – including durable goods orders and new home sales. Both of these help to gauge the sentiment of U.S. consumers and businesses. Residential housing market has been booming supported by all-time low mortgage rates. Existing home sales have ballooned from -26.6% in March to a stunning +26.6% in October which is the hottest growth since September 2009.
Initial jobless claims have started creeping up again as they rose from 711,000 two weeks ago to 742,000 last week. These levels are way above the circa 500,000 that may be considered as the end of recession. Also, the percentage of permanent job losers as a share of all unemployed as currently 35% which is below 2010 peak of 45%. The critical difference between 2008 and 2020 crisis is that the former resulted in slow increase in unemployment over 2 years, whilst this year we experienced a sudden shock of large-scale bankruptcies and redundancies. Also, we are likely to see structural changes which are disproportionally impacting lower income jobs. For instance, leisure and hospitality workers make up roughly 25% of the unemployed private sector pool. Unemployment rate has come down from 14% to 7% but a large chunk of people are not counted in that statistic as they have given up looking for a job. This impacts the supply side of the economy and is expected to shed 1% from GDP growth, as Rosenberg Research model indicates.
Markets have been muted after post-election euphoria – S&P500 was down 1.5% last week, while Nasdaq100 ended the week flat. Gold lost 7 basis points and USD, measured by DXY, shed 7 basis points.
Have a great trading week ahead!