Pfizer’s 90% efficacy rate was just surpassed by Moderna’s 94.5% rate. Incredibly impressive and will be another nail in the covid coffin when broadly rolled out in 2021. Again, from a market perspective, it means lower work from home stocks, higher everything else and a continued move up in inflation (mostly in 2021) and interest rates. I feel again that the direction of rates and the pressure on central banks in 2021 to begin the reversal of their uber easy policy will be the main driver of both stocks and bonds at the same time our daily lives get back to more of a normal. We know the markets are not the economy, which we saw in 2020 and could see the reverse in 2021.
Relative to expectations, the Chinese economy started Q4 on a mixed note. Retail sales in October rose 4.3% y/o/y vs 3.3% in September but that was below the estimate of up 5%. Industrial production held at a 6.9% y/o/y gain, two tenths more than expected. Fixed asset investment ytd y/o/y was 1.8% higher, also two tenths more than forecasted. Retail sales are still below the pre pandemic levels as they are down 5.9% ytd y/o/y but IP is above with its 1.8% ytd y/o/y increase. Overall, the good containment of covid has allowed the Chinese economy, along with others in the region, to recapture much of what was lost. With respect to the Chinese consumer, it will be the most important economic driver globally over the next decade just as the US consumer has been over the past few decades. The Shanghai comp was higher by 1.1% while the H share index was up a more modest .3%. Keep your eye on copper, up 1.8% today and which is now breaking out to the highest level since June 2018.
Japan’s economy in Q3 rose 21.4% q/o/q annualized after the 28.8% contraction in Q2. That is above the 18.9% estimate and was mostly driven by private spending and exports but business spending fell again. The expectation is that the Japanese economy gets back to its pre Covid level in early 2022 as we see a Q4 slowdown due to the virus flare up but then a 2021 further rebound. On the GDP beat, the Nikkei continued its strong performance with a 2% gain and now is approaching 26,000. I remain positive.
As the BoE is analyzing the impact on negative interest rates, the council member of the Polish central bank who currently has rates at .1% said on NIRP, “A negative rate would be economically unjustified and bad for the financial system stability. It could even be questionable in light of the constitution and the central bank charter.” I’d love to get this guy in a room with Mario Draghi and Haruhiko Kuroda for a debate.