Key Events In The Coming Action-Packed Week

It’s straight off to the races in the first full week of 2021, as the market euphoria from 2020 continues amid a fresh newsflow avalanche which starts with the OPEC+ alliance energy ministers holding their monthly virtual gathering Monday to decide whether to add as much as 500,000 barrels a day to production. Traders will also focus on the FOMC minutes due out Wednesday and the US payrolls report for December due on Friday. It will be very busy on the political front in the US, where Tuesday sees the state of Georgia hold a run-off election for two U.S. Senate seats which will decide control of the chamber, while on Wednesday, Congress will meet to count electoral votes and declare the winner of the 2020 Presidential election Wednesday.

Looking at the week’s key events, DB’s Henry Allen agrees that US politics will dominate the calendar, with tomorrow’s runoff elections in the state of Georgia determining which party will control the Senate over the coming 2 years. This is an important one for markets, since the results will affect how much of President-elect Joe Biden’s agenda will be able to pass through Congress, as well as the size of any fiscal stimulus package. As a reminder, in November’s election the Republicans won 50 seats in the Senate to the Democrats’ 48, but 2 seats in Georgia were left unfilled because candidates in that state have to get an outright majority of the votes to get elected, meaning a runoff election is being held. If the Democrats manage to take both seats, the chamber will be split 50-50, and since the Vice President casts the deciding vote, the Democrats will have control following the inauguration of Joe Biden and Kamala Harris on January 20. However, if the Republicans take just one seat or both, that means Biden will have to deal with a Republican-controlled Senate for at least the first two years of his term.

The polls have been on a knife-edge throughout, but the latest polling average from FiveThirtyEight indicates that the Democrats have pulled ahead in recent days with a narrow lead of +1.8pts and +2.2pts in the two races. If they did manage to win both and hence control of the Senate, our US economists think that another large fiscal stimulus package would be likely, possibly including some of the more structural priorities of the new administration such as infrastructure, and thus would represent a material upside to their GDP forecast for this year. However, if they fail to win both, then a Republican-controlled Senate would mean that they can be expected to block the vast majority of Democratic priorities. Either way, the results are unlikely to be known tomorrow, since the state can’t start counting the mail-in ballots until Election Day.

Staying on US politics, on Wednesday the joint session of Congress will take place where the electoral votes from the presidential election are formally counted. Normally this is just procedural, but this year a number of Republican senators have said that they’ll vote to challenge the certification of the results, with a group of Republican senators saying that if an election commission weren’t created to investigate claims of fraud, then they “intend to vote on January 6 to reject the electors from disputed states”. However, given the Democrats control the House and multiple Republican senators have condemned these attempts, this challenge isn’t expected to go anywhere.

Rabobank’s Eric Peters is even more laconic:

This week will then see quite the US political show with huge consequences for 2021 and 2022. Tomorrow has Georgia’s two run-off senatorial elections that will determine who controls the senate: and then Wednesday has what is likely to be a circus in D.C., which deserves more than the space left here to cover, ahead of the end of US President Trump’s term in office on 20 January..

On the data front, the two highlights this week are likely to be the December PMIs today and on Wednesday, as well as the US jobs report on Friday. Starting with the PMIs, as mentioned we’ve already had some of the manufacturing numbers from Asia overnight, with the full picture from Europe and the US expected later, before we get the services and composite numbers mid-week. Any surprises should be limited though, given we’ve already had the flash PMIs for a number of the major economies before Christmas, with the flash Euro Area composite reading still at a contractionary 49.8 reading.

Elsewhere, the final US jobs report of 2020 is expected by our economists to show just a +50k increase in nonfarm payrolls, which would be the weakest monthly job growth since the pandemic began, and coincides with renewed lockdown measures in numerous states in response to the recent surge in cases. They expect that the unemployment rate will tick up to 6.8%, in its first increase since the first wave of the pandemic back in April.

Finally, there isn’t a great deal on the central bank front, with no major monetary policy decisions this week. However, we will get the minutes of the December Fed meeting on Wednesday, and hear from a number of speakers including Fed Vice Chair Clarida and Bank of England Governor Bailey over the coming week, along with two new voting members on the FOMC in 2021, in Chicago Fed President Evans and Atlanta Fed President Bostic.

A day-by-day calendar of events, courtesy of Deutsche Bank

Monday January 4

• Data: December manufacturing PMIs from Italy, France, Germany, Euro Area, UK, Brazil, Canada, US and Mexico, UK November mortgage approvals, US November construction spending
• Central Banks: Fed’s Evans, Bostic and Mester and ECB’s Lane speak

Tuesday January 5

• Data: France preliminary December CPI, Germany December unemployment change, Euro Area November M3 money supply, US December ISM manufacturing
• Central Banks: Fed’s Evans and Williams speak
• Politics: Georgia runoff elections to the US Senate

Wednesday January 6

• Data: December services and composite PMIs from Japan, China, India, Italy, France, Germany, Euro Area, UK, Brazil and US, France December consumer confidence, Germany preliminary December CPI, US December ADP employment change, November factory orders, final November durable goods orders, nondefence capital goods orders ex air
• Central Banks: FOMC December meeting minutes released, Bank of England Governor Bailey speaks
• Politics: Joint Session of US Congress meets to count electoral votes and declare results

Thursday January 7

• Data: Germany November factory orders, December construction PMI, UK December construction PMI, Italy preliminary December CPI, Euro Area November retail sales, December CPI estimate, final December consumer confidence, US weekly initial jobless claims, November trade balance, December ISM services index
• Central Banks: Fed’s Harker, Bullard and Evans speak

Friday January 8

• Data: Japan preliminary November leading index, Germany November industrial production, France November industrial production, Euro Area November unemployment rate, Italy preliminary November unemployment rate, Canada December net change in employment, US December change in nonfarm payrolls, unemployment rate, average hourly earnings, final November wholesale inventories
• Central Banks: Fed Vice Chair Clarida speaks

Finally, looking at just the US, here is a breakdown of key events this week via Goldman, which writes that the key economic data releases this week are the ISM manufacturing report on Tuesday, the jobless claims and ISM non-manufacturing reports on Thursday, and the employment report on Friday. In addition, minutes from the December FOMC meeting will be released on Wednesday. There are several scheduled speaking engagements by Fed officials this week, including Vice Chair Clarida on Friday.

Monday, January 4

• 09:45 AM Markit manufacturing PMI, December final (consensus 56.3, last 56.5)
• 10:00 AM Construction spending, November (GS +1.2%, consensus +1.0%, last +1.3%): We estimate a 1.2% increase in construction spending in November, with scope for a significant increase in private residential construction.
• 10:00 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the economy and monetary policy on a panel at the annual AEA/ASSA meeting. Prepared text and audience and media Q&A are expected.
• 10:00 AM Atlanta Fed President Raphael Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss innovations in measuring the economic impacts of Covid-19 on a virtual panel during the AEA/ASSA meeting. Audience Q&A are expected.
• 12:15 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Mester will discuss a paper on increasing diversity in economics at the annual AEA/ASSA meeting.
• 06:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Mester will discuss the economic outlook at the annual AEA/ASSA meeting.

Tuesday, January 5

• 10:00 AM ISM manufacturing index, December (GS 57.0, consensus 56.6, last 57.5): We expect the ISM manufacturing index to edge down by 0.5pt to 57.0 in the December report, reflecting mixed regional manufacturing surveys for the month.
• 03:45 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the Fed’s actions during the pandemic at the annual AEA/ASSA meeting. Prepared text and audience Q&A are expected.
• 03:45 PM New York Fed President John Williams (FOMC voter) speaks: New York Fed President John Williams will chair a virtual paper session on the monetary-fiscal nexus with ultra-low interest rates during the annual AEA/ASSA meeting.
• 05:00 PM Lightweight motor vehicle sales, December (GS 16.0m, consensus 15.6m, last 15.6m)
• 07:00 PM Polls close in Georgia for Senate runoff elections

Wednesday, January 6

• 08:15 AM ADP employment report, December (GS -75k, consensus +50k, last 307k): We expect a 75k decline in ADP payroll employment, reflecting an increase in jobless claims and expected weakness in private payrolls in December.
• 09:45 AM Markit services PMI, December final (consensus 55.3, last 55.3)
• 10:00 AM Factory orders, November (GS +0.7%, consensus +0.8%, last +1.0%); Durable goods orders, November final (last +0.9%); Durable goods orders ex-transportation, November final (last +0.4%); Core capital goods orders, November final (last +0.4%); Core capital goods shipments, November final (last +0.4%): We estimate factory orders increased by 0.7% in November following a 1.0% increase in October. Durable goods orders rose by 0.9% in the November advance report, and core capital goods orders rose by 0.4%.
• 02:00 PM Minutes from the December 15-16 FOMC meeting: At its December meeting, the FOMC left the funds rate target range unchanged at 0–0.25%, as widely expected, and provided new guidance on the timeline for tapering asset purchases, but did not announce changes to the maturity composition of its asset purchases. In the minutes, we will look for insights into the Committee’s asset purchase decisions.

Thursday, January 7

• 08:30 AM Initial jobless claims, week ended January 2 (GS 840k, last 787k); Continuing jobless claims, week ended December 26 (last 5,219k): We estimate initial jobless claims increased to 840k in the week ended January 2.
• 08:30 AM Trade balance, November (GS -$67.5bn, consensus -$64.5bn, last -$63.1bn): We estimate the trade deficit increased by $4.4bn in November, reflecting an increase in the goods trade deficit. Goods imports have returned to their pre-pandemic level, but monthly goods exports are still about $10bn below their pre-pandemic level. Both imports and exports of services have recovered only slightly from their Q2 troughs.
• 09:00 AM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will discuss his economic outlook during a virtual event hosted by the Philadelphia Business Journal. Prepared text and audience Q&A are expected.
• 10:00 AM ISM non-manufacturing index, December (GS 54.0, consensus 54.5, last 55.9): We estimate the ISM non-manufacturing index declined by 1.9pt to 54.0 in December, reflecting likely weakness in leisure, food services, and other services. Our GS Non-Manufacturing Survey Tracker declined by 1.8pt to 52.0 in December and our GSAI fell.
• 12:00 PM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will discuss the U.S. economy and monetary policy during a virtual event hosted by the Little Rock Regional Chamber of Commerce. Prepared text and audience and media Q&A are expected.
• 01:00 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will speak to the Wisconsin Bankers Association Midwest Economic Forecast Forum. Audience Q&A are expected.

Friday, January 8

• 08:30 AM Nonfarm payroll employment, December (GS -50k, consensus +50k, last +245k); Private payroll employment, December (GS -100k, consensus +50k, last +344k); Average hourly earnings (mom), December (GS +0.2%, consensus +0.2%, last +0.3%); Average hourly earnings (yoy), December (GS +4.5%, consensus +4.5%, last +4.4%); Unemployment rate, December (GS 6.8%, consensus 6.8%, last 6.7%): We estimate nonfarm payrolls declined 50k and private payrolls declined 100k in December. While job growth slowed in the November report, we believe the survey period was too early to reflect the full impact of the coronavirus resurgence, because employment in highly sensitive categories declined significantly only in Illinois (one of the earliest states implementing major restrictions). Most of the Big Data employment signals we track also indicate a decline in December payrolls. And while continuing claims continued to fall on net, most of the drop reflected the expiration of program eligibility (as opposed to reemployment). Additionally, initial claims during the payroll month rose for the first time since April. On the positive side, we expect a rise in education employment (public and private), as virtual schooling reduces the scope for seasonal downtime for support staff.
• 11:00 AM Fed Vice Chair Clarida (FOMC voter) speaks: Fed Vice Chair Clarida will discuss the economy and monetary policy during a virtual event hosted by the Council on Foreign Relations. Prepared text and audience and moderated Q&A are expected.

Source: Deutsche Bank, Goldman