U.S. Markets: Major U.S. benchmarks ended the week mostly to the upside as investors weighed lawmakers’ approval of a fiscal stimulus package against ongoing concerns over the coronavirus.  The Dow Jones Industrial Average added a scant 21 points finishing the week at 30,200, an increase of 0.1%.  The technology-heavy NASDAQ Composite added 0.4% closing at 12,805.  By market cap, the large cap S&P 500 ended down -0.2%, while the mid cap S&P 400 and small cap Russell 2000 rose 1.2% and 1.7%, respectively.

International Markets: Most international markets finished the week in the red.  Canada’s TSX rose 0.5%, while the United Kingdom’s FTSE 100 ended down -0.4%.  On Europe’s mainland France’s CAC 40 and Germany’s DAX declined  0.1% and -0.3%, respectively, while China ended down -0.9% and Japan gave up -0.4%.  As grouped by Morgan Stanley Capital International, developed markets declined -0.4% while emerging markets fell a greater  1.7%.  

Commodities: After rising for three weeks, Gold had its first down week by giving up -0.3% to $1883.20 an ounce.  Silver fell a slightly larger -0.5% to close at $25.91.  Crude oil retreated slightly, widely expected after seven consecutive weeks of positive closes.  West Texas Intermediate crude oil declined -2.1% to $48.23 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, also closed down -1.9% after seven weeks of gains.  

U.S. Economic News: The number of Americans filing first-time unemployment benefits fell to a 3-week low last week but remained stubbornly high.  The Labor Department reported initial jobless claims sank by 89,000 to 803,000 in the week ended December 19th.  Economists had forecast claims would total 875,000.  Claims had slid to a pandemic low of 711,000 in early November before a resurgence in coronavirus cases spawned another round of layoffs. 

Continuing claims, which counts the number of people already receiving benefits, fell by 170,000 to a seasonally adjusted 5.34 million.  That reading is a new pandemic low.  Economists Nancy Vanden Houten and Gregory Daco of Oxford Economics wrote in a note to clients, “While an easing of the pandemic is in view as the coronavirus vaccine comes online, the health situation is likely to remain dire for a few more months at least, weighing on the labor market and the economy more broadly.”

Home buyers continue to show interest in purchasing property amid the pandemic, but the record-low inventory of homes for sale is threatening the market.  The National Association of Realtors (NAR) reported existing-home sales fell in November after five consecutive months of increases.  Total existing-home sales dipped 2.5% to a seasonally-adjusted annual rate of 6.69 million.  Still, analysts were quick to point out October’s sales figure had been the highest in 15 years and compared with the same time last year, home sales were up nearly 26%.  The inventory of homes for sale fell nearly 10% to a record-low of 1.28 million units—just a 2.3-month supply.  Analysts generally consider a six-month supply of homes to be a “balanced” housing market.  As expected, the falling inventory pushed prices upwards.  The median existing-home price was $310,800 in November—up 14.6% from a year ago.

Orders for goods expected to last at least three years, so-called “durable goods”, rose for a seventh consecutive month in November.  The Commerce Department reported orders for durable goods rose 0.9% last month after a 1.8% gain in October.  Economists had expected just a 0.3% increase.  Orders for transportation equipment led the increase with a 1.8% gain.  Core capital goods orders, which exclude the aircraft and defense categories, rose 0.4% in November.  Capital investment continues to be a bright spot for the U.S. economy in recent months, powered by low interest rates and hopes that the U.S. economy will continue to rebound from its sharp contraction in the first half of the year.  Still, analysts are monitoring the decline in the rate of growth.  Rubeela Farooqi, chief U.S. economist for High Frequency Economics in a note, “The November data are signaling a slowing in momentum for both business investment and equipment spending.”

Confidence among the nation’s consumers tumbled in December for the second month, hitting the lowest level since August.  The Conference Board reported its index of consumer confidence fell 4.3 points to 88.6 this month.  The reading was not far above the 85.9 reading in May at the tail end of the first coronavirus pandemic lockdown.  Economists had forecast confidence would rise to 96.7 in December.  In the details, the sub-index that tracks how consumers feel about the economy right now dropped 15.6 points to 90.3, while another gauge that measures how Americans view the next six months inched up 3.2 points to 87.5.  For perspective, the index had stood at 132.6 right before the viral outbreak in February.  Lynn Franco, senior director of economic indicators at the Conference Board stated, “Overall, it appears that growth has weakened further in the fourth quarter, and consumers do not foresee the economy gaining any significant momentum in early 2021.”

As confidence pulled back, so did spending.  Consumer spending, the backbone of the U.S. economy, declined in November as COVID-19 cases picked up across the country and dampened activity.  The government reported consumer spending fell 0.4% in November after a revised 0.3% gain the prior month.  The decline was in line with expectations.  Personal income slumped 1.1% following a revised 0.6% decline the prior month.  Inflation remained in check according to the Federal Reserve’s preferred inflation gauge—the Personal Consumption Expenditures index (PCE).  The PCE Index ticked down to 1.1% in November, while the core PCE rate that strips out food and energy remained steady at 1.4%.  Both measures remained well below the Federal Reserve’s stated target of 2%.

The Chicago Fed’s National Activity Index, a gauge of overall U.S. economic activity, declined in November to its lowest - but still positive - level since May.  The Chicago Fed reported its National Activity Index fell 0.74 point to 0.27 in November.  A zero value indicates the national economy is expanding at its historic trend rate of growth.  The index is a weighted average of 85 economic indicators.  In the report, 49 of the individual indicators made positive contributions.  Production-related indicators added 0.14 to the index (down from 0.36 in the prior month), while employment-related indicators contributed 0.15 to the index.  Overall, the index points to slower but still slightly above-average growth going forward.

International Economic News: Canada’s economy grew for a sixth consecutive month in October, but remained well off its pre-COVID levels.  Statistics Canada said the country’s GDP rose thanks to a 0.1% expansion in goods-producing industries and a 0.5% increase from the service sector.  The overall gain was slightly better than the 0.3% that economists had been expecting.  Most industries grew, except for manufacturing and the food and accommodation sector, which continues to be hard hit by COVID-19.  The estimate for November's data is for another 0.4% rise, which if it comes to pass still means the economy will be on track to be almost 4% below where it was before COVID-19.

A trade deal has finally been reached between the United Kingdom and the European Union.  The 1,246-page “Draft EU-UK Trade and Cooperation Agreement” means that on December 31st, when Britain finally leaves the EU’s single market and customs union, there will be no tariffs or quotas on the movement of goods originating in either the United Kingdom or the European Union.  Prime Minister Boris Johnson cast the deal as the final implementation of the will of the British people who voted 52-48% for Brexit in a 2016 referendum, while Europe’s leaders said it was time to leave Brexit behind.  Michael Gove, a senior British minister who campaigned to leave the EU, said the deal would allow Britain to put some of its divisions behind it, and focus on a “new pattern of friendly cooperation with the EU.”

On Europe’s mainland, Germany extended its UK travel ban from Britain until January 6th over concerns of a highly infectious new COVID-19 variant.  The move came despite a European Commission’s recommendation earlier for member states to lift the ban.  Germany is among a growing list of European Union nations that have recently barred or been considering banning travel from Britain over concerns about a new strain of coronavirus sweeping across southern England.  The move came as France recorded its first case of the new variant.

In Asia, the Center for Economics and Business Research (CEBR) stated China will overtake the United States to become the world’s biggest economy in 2028—5 years earlier than previously estimated.  The CEBR updated its estimates due to the contrasting recoveries of the two countries in the wake of the coronavirus pandemic.  In its annual report published this week the CEBR wrote, “For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China.  The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favor.”    The CEBR said China’s “skillful management of the pandemic,” with its strict early lockdown, and hits to long-term growth in the West meant China’s relative economic performance had improved.

Japan’s Trade Ministry released its roadmap to guide Japan’s economy away from fossil fuels and encourage growth in green energy industries as part of Prime Minister Yoshihide Suga’s pledge to eliminate net carbon dioxide emissions by 2050.  The report calls for strong government spending to subsidize and incentivize emissions reduction, and innovation in more than a dozen industries.  A trade ministry official told reporters, “To divest from fossil fuels, shift to renewable energy and eliminate carbon emissions should not be seen as a restriction of economic activity, but as an opportunity to take advantage of inevitable change.  The central government will stand behind the private sector in leading the shift to a carbon free society.”

(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.)