U.S. Markets: The major U.S. indexes hit new highs during the week, but pulled back to end the week mixed.  The small cap Russell 2000 outpaced the large cap S&P 500 for the fifth consecutive week, recording a modest gain.  Within the S&P 500 the energy sector continued to outperform by a wide margin as international (Brent) oil prices crossed $50 per barrel for the first time since the onset of the coronavirus pandemic.  The Dow Jones Industrial Average finished the week down -172 points to 30,046—a decline of -0.6%.  The technology-heavy NASDAQ Composite retreated -0.7%.  By market cap, the S&P 500 ended the week down 1.0%, while the midcap S&P 400 ticked down -0.2%, and the small cap Russell 2000 finished the week up 1.0%.

International Markets: Canada’s TSX ended the week up 0.2%, but all other major international markets finished in the red.  The United Kingdom’s FTSE 100 ticked down -0.1%, while on Europe’s mainland France’s CAC 40 and Germany’s DAX declined -1.8% and -1.4%, respectively.  In Asia, China’s Shanghai Composite ended down -2.8%.  Japan’s Nikkei gave up -0.4%.  As grouped by Morgan Stanley Capital International, developed markets retreated  0.5%, and emerging markets fell -0.3%.

Commodities: Precious metals were mixed on the week.  Gold managed to close up for a second consecutive week, adding 0.2% to $1843.60 an ounce, while Silver retreated -0.7% to $24.09 an ounce.  West Texas Intermediate crude oil climbed for a sixth consecutive week closing at $46.57 per barrel, a gain of 0.7%.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, also rose for a sixth week up 0.1%. 

U.S. Economic News: The Bureau of Labor Statistics reported new applications for unemployment benefits jumped to a nearly three-month high last week after a record surge in coronavirus cases and filing delays tied to the Thanksgiving holiday.  Initial jobless claims surged by 137,000 to 853,000.  Economists had expected new claims to total a seasonally adjusted 720,000.  New jobless claims rose the most in the states of California, Texas, Illinois and New York where coronavirus cases have risen again.  Continuing claims, which counts the number of Americans already receiving benefits, climbed by 230,000 to a seasonally-adjusted 5.76 million.  Analysts noted the increase doesn’t bode well for an improving jobs picture going into December.  Robert Frick, corporate economist at Navy Federal Credit Union stated, “Given Covid-19 cases and deaths are now regularly setting new highs, these reports put into question job growth in December, especially given the rapid slowdown in growth in November.”

The number of job openings in the United States rose slightly, but the number of Americans being laid off rose even faster the Labor Department reported.  Job openings ticked up to 6.65 million from 6.45 million in October, with about 5.8 million people being hired.  However, separations—layoffs, firings, and retirements, rose as well to 5.1 million.  By sector, job openings rose the most in health care and manufacturing, while retail declined the most.  Retailers have continued to be one of the sectors hardest hit by the pandemic.  Furthermore, retailers are expected to hire fewer people this holiday season.  The “quits” rate, rumored to be closely watched by the Federal Reserve as providing a more accurate reading of the status of the labor market, remained unchanged at 2.4% among private-sector employees.  

The cost of goods and services at the consumer level rose modestly in November but remained relatively low.  The Bureau of Labor Statistics reported the consumer price index increased 0.2% in November, a tick above economists’ estimates.  The pace of inflation over the past year remained unchanged at 1.2%.  For reference, consumer inflation had been running at a much higher 2.3% just prior to the pandemic outbreak.  A separate measure of inflation that strips out the often-volatile food and energy categories known as the “core rate” also rose 0.2% last month.  The core rate has risen 1.6% in the past year.  

At the producer level, inflation rose by the smallest amount in seven months underscoring the lack of inflationary pressure in the economy still weighed down by the effects of the coronavirus pandemic.  The Labor Department reported the Producer Price Index ticked up 0.1% this week, matching forecasts.  Over the past year, wholesale inflation is up just 0.8%.  That number had been growing at an annual rate of 2% in January—shortly before the coronavirus pandemic emerged.  Higher prices for goods, mainly energy, were the biggest contributor to the increase in wholesale costs last month, the government said.  Another measure of wholesale inflation that’s less prone to sharp swings, known as the core rate, also increased 0.1% last month.  The core rate has risen just 0.9% in the past year, a tick higher than in October.

After several months of growth, consumer borrowing slowed in October according Federal Reserve data.  Total consumer credit increased by $7.2 billion bringing annual growth to 2.1%.  That was down from a $15 billion gain in September.  Economists had expected the strength in September to continue estimating a $17 billion increase.  Revolving credit, like credit cards, fell 6.7% in October after a 3.2% jump in the prior month.  Non-revolving credit, typically auto and student loans, rose at a 4.8% rate after a 4.7% rate in September.  Separate data from the New York Fed found that credit-card balances fell by $10 billion in the third quarter after a record $76 billion decline in the second quarter.  The data does not include mortgage loans, which is the largest component of household debt.  Mortgage originations came in at $1 trillion in the third quarter, the second largest quarterly increase on record, the New York Fed said.

International Economic News: The Bank of Canada warned it expects economic restrictions put in place in response to burgeoning COVID case counts will hold down economic growth in the first three months of the new year.  The Bank of Canada held its key policy rate at 0.25% stating that the virus will “contribute to a choppy trajectory until a vaccine is widely available.”  Like most western economies, the Canadian economy took a nosedive in March and April when the pandemic first washed over the country, as non-essential businesses were ordered closed, workers told to stay at home and some three million jobs were lost.  Since then, the country has clawed back just over four-fifths of those job losses.  The Bank also said it will continue to buy about $4 billion in bonds per week to try and further reduce interest rates.

Across the Atlantic, Britain’s economic recovery slowed nearly to a halt in October as a surge in coronavirus cases weighed on the hospitality sector.  Britain’s gross domestic product rose 0.4% in October—its weakest growth since April, after expanding 1.1% in September.  A limited rollout of a COVID vaccine began this week in Britain, offering hope for a rebound in consumer spending in 2021.  However, many British businesses are expected to face new headwinds from trade restrictions with the European Union that come into force on Jan. 1 when post-Brexit transition arrangements end.

On Europe’s mainland, French President Emmanuel Macron called for “digital sovereignty” for Europe.  Macron stated a top goal in the European debate over updating the “rules of the road” for internet should be a “European solution and European sovereignty”.  European Union regulators are working on a Digital Services Act that would address issues such as antitrust rules and taxes.  There are three key requirements needed for “digital sovereignty,” Macron said: having more cooperation across the EU on issues like the financing of startups; creating a “digital single market” that protects privacy and promotes tech innovation; and setting up cloud and data solutions to curb reliance on U.S. companies.  “We need European financing, European solutions, European talents, European regulations,” Macron said.

German Finance Minister Olaf Scholz laid out a plan that sees Europe’s largest economy continuing to spend aggressively to spur growth and climb out of the coronavirus crisis.  Speaking to lawmakers, Scholz defended plans for new borrowing of nearly 180 billion euros ($218 billion) next year—nearly double the amount initially budgeted.  “We will grow out of this crisis,” Scholz, who is running to succeed Angela Merkel as chancellor next year, said in Berlin.  “We will win the future by making sure we make the right investments.”  Germany’s budget includes some 30 billion euros for possible extra stimulus measures, which have yet to be specified.  The willingness of the federal government to spend freely has spurred opposition, especially from Merkel’s conservative bloc which wants a quick return to constitutional debt limits.

In Asia, ratings agency Fitch raised its forecast for China’s GDP to 8% growth next year, up from 7.7% it predicted in September.  The analysts pointed to expectations of a stronger recovery in domestic demand and a better global environment once a coronavirus vaccine is widely available.  The world’s second-largest economy is set to expand 2.3% this year, Fitch said, after a contraction of 6.8% in the first quarter in the wake of the coronavirus pandemic.  The upgrade fell within the range of other ratings agencies—Nomura is expecting expansion of 9% next year, while Natixis is looking for 7.8% growth.

Japan announced a fresh $708 billion economic stimulus package this week to speed up the nation’s recovery from the coronavirus.  The package includes extensions of subsidy programs aimed at promoting domestic travel, spurring consumption and helping companies maintain employment, as well as incentives for digitalization and carbon reduction, according to government officials.  Prime Minister Yoshihide Suga said his government estimates the stimulus measures will boost Japan's real gross domestic product by 3.6%, helping the world's third-largest economy to continue rebounding from the worst contraction on record since 1955.

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, CNBC, FactSet.)