Equities
U.S. equities straddled all-time highs last week as yields
retreated amid fresh COVID concerns. Cases have turned
upward in the U.S. and continue to soar in Europe, where Austria
announced a lockdown and Germany considers one. Markets
fell back on their trusted pandemic trade, with the Nasdaq 100
gaining 2.31% as tech led and cyclicals and small caps lagged.
With real yields continuing to plumb all-time lows, relative
performance in equity markets (Nasdaq vs cyclicals) has shown
a strong 0.66 correlation to moves in the 10-year Treasury over
the past 3 months. Stocks in Europe lagged on the COVID
situation, while EM continues to be stymied by a stronger USD.
Fixed income
Benchmark yields slipped at the end of last week as focus
turned towards the worsening European COVID outbreak and
the economic implications of a fresh round of lockdowns. The
10-year U.S. Treasury yield tried for much of the week to push
higher but dipped on Friday to finish the week at 1.55%, down 2
bps. Fed rate hike expectations continue to point to almost 3
bps of rate hikes by the end of 2022. Credit spreads widened
modestly, and IG corporate performance fell –0.03% and high
yield fell –0.38% on the week.
Commodities
Crude oil ended at $76.10/bbl, the lowest weekly close in two
weeks as myriad factors weighed on prices. An upturn in COVID
cases in the U.S. and fresh lockdowns in Europe served to
dampen demand sentiment, while the threat of an SPR release
in the U.S. has ignited supply concerns. After months of
declines, lumber futures surged 48% on the week on
transportation issues in Canada. Gold held steady near 5-month
highs, supported by record-low real yields.
Economic overview
Retail sales surged in October, alleviating concerns that
households would flinch in the face of rising inflation. Retail sales
rose 1.7% in the month, and the “control” group that excludes
energy, food and building materials also jumped 1.6%, a sign
that consumption was broad-based. Some analysts pointed out
that consumers may be front-loading holiday purchases in the
face of supply-chain bottlenecks, but the overall tone of the
report was roundly upbeat. Regional manufacturing surveys for
November were notably strong. The New York manufacturing
survey hit 30.9 vs 22.0 expected, and the Philly Fed survey rose
to 39.0 vs 24.0 expected. Finally, housing starts slipped –0.7% in
October while building permits rose 4.0%. Both seem to be
returning to a pre-pandemic trend.
