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Weekly Market Digest
January 4 to January 8, 2021

Don Curren January 8, 2021

Eventful weeks like this one, which included the violent storming of the US Capitol, new record highs in stock markets and a continuing surge in coronavirus cases, are often characterized by a challenging and problematic signal-to-noise ratio.

Yes, there’s a lot going on and there’s a tremendous amount of fodder for analysis, but it’s essential to try to distinguish the important signals about longer-term trends in markets, the economy, and the geopolitical environment from the noise created by political turmoil and market volatility.

What’s truly important and enduring won’t be definitely known for years, if not decades. Efforts to identify signals and discard noise are always provisional, and always subject to revision when new information becomes available. That said, here is a brief dissection of the week’s events in terms of signal and noise.

Dramatic images of rioters overwhelming the police, penetrating the US Capitol Building, and committing acts of vandalism and mayhem are hard to ignore, and suggest the storming of that iconic building Wednesday afternoon was unarguably the most significant event of the week.

But I would suggest that was noise, albeit noise amplified enormously in the echo chamber of contemporary media, social and otherwise. (I perennially try to keep in mind something a very experienced and insightful journalist and author once said to me – “There’s always a lot of noise in American politics.”)

The real signal this week, at least in terms of US politics, is what happened in Georgia on Tuesday. The Democratic victory in the Senate runoffs there signals important demographic and political changes in an influential and trendsetting state, but, more importantly, by delivering a “trifecta” for the Democrats, it sets the change for a rapid and decisive change in US policy direction that will be sustained at least until the midterm elections in two years.

Although it will have very real and lasting consequences for many, many people – including the families of the killed and injured – the siege of the Capitol only succeeded in delaying the Congressional certification of the presidential election results for a few hours.

One could argue that the events on Capitol Hill are themselves a compelling demonstration of the importance of distinguishing between signal and noise. At least some of the participants appear to have been adherents of bizarre conspiracy theories – people who seem to have failed to disregard the noise so prevalent on social media and identify the accurate signals that are available there – if you think critically and independently.

The key economic data point of the week, the jobs data for the US released on Friday, also seemed to offer a high amount of noise. While the United States lost 140,000 jobs last month, far below expectations as tightening lockdown restrictions slammed the service sector in many of the country’s most populous states, that may not be a reliable signal of employment trends going forward: labor market conditions are expected to improve as the working age population begins to receive vaccinations and newly approved stimulus spending starts to flow.

“With little evidence of a broad-based economic slowdown, and job losses largely concentrated in occupations that rely on face-to-face interaction, hopes for a snapback remain largely intact,” Cambridge’s Chief Market Strategist Karl Schamotta wrote in a Market Wire earlier today.

Both noise and signal continue to be at play in the numbers generated by the COVID-19 pandemic this week. While attention was largely focused on the political turmoil roiling the US this week, the pandemic notched yet another alarming record. The US reported more than 4,000 COVID-19 deaths Thursday — the most virus-related deaths the country has reported in one day since the pandemic’s start. That marked the third day in a row of record daily deaths from the disease, according to data from Johns Hopkins University.

That should be a signal to those who continue to neglect public-health guidelines: even though vaccines are being rolled out, the coronavirus is still a deadly force and will continue to wreak unnecessary death and destruction if the scientific realities about its spread and the recommendations based on them are ignored.

Next week may prove a little less noisy than this one, at least if the data calendar is any guide. Consumer price index data for December will be released in the US on Wednesday, followed by weekly jobless claims data on Thursday and the University of Michigan’s Consumer Confidence Survey on Friday. There are no major releases scheduled for Canada, and no monetary policy related activities from major central banks.

Suggested Reading   |   Cambridge Market Analysis

■ Jobs Numbers Fall, Markets Stay Positive read article
■ US Service Sector Strong in December, But Pandemic Restrictions Still A Challenge  read article
■ US Dollar Higher Amid Mixed Data, Political Turmoil  read article
■ Blue Wave Washes Over Currency Markets, Then Recedes  read article
■ Fed Minutes Released Amid Political Tumult Point to Continued Monetary Stimulus  read article
■ Key US Manufacturing Metric Shows Unexpected Strength in December  read article

Suggested Reading   |   Counterparties

■ WSJ: Canada’s Trudeau Confident in Strong Recovery for 2021​  read article
■ NBC Washington: DC, Maryland, Virginia National Guard Troops to Remain After Mob Stormed US Capitol  read article
■ NYT: Police Failures Spur Resignations and Complaints of Double Standard  read article
■ Bloomberg: Elon Musk Surpasses Jeff Bezos to Become World’s Richest Person  read article
■ FT: Distressed debt specialist Howard Marks warns on corporate borrowing burden  read article
■ Federal Reserve: Minutes of the Federal Open Market Committee December 15–16, 2020​​​​​​ read article
■ CBC Opinion: The trillion-dollar question is how federal spending will position the economy for post-pandemic success  read article
■ Wired: A 25-Year-Old Bet Comes Due: Has Tech Destroyed Society?  read article
■ WSJ: How Many People Have Had Covid-19 Across the U.S.? ​​​​​​ read article

Calendar for the Week Ahead

Monday, January 11
■ AUD – Westpac Consumer Confidence

Wednesday, January 13
■ EUR – Industrial Production
■ USD – Consumer Price Index
■ USD – Fed Beige Book

Thursday, January 14
■ CNY – New Yuan Loans
■ USD – Jobless Claims

Friday, January 15
■ GBP – Gross Domestic Product
■ EUR – Balance of Trade
■ USD – Retail Sales
■ USD – Michigan Consumer Sentiment Index

Don Curren
Market Strategist and Content Editor