Independent Strategy

Macro Matters

January 2021

Independent Strategy Blog: Macro Matters
Global

27th January, 2021 » Stuck in the doldrums

Economic activity seems to be bedding down in the doldrums amid lockdowns and other varying restrictions on activity.  Europe continues to suffer the most, although weak activity remains a broad phenomenon.

Vaccinations have continued to rise exponentially up 50% between Jan 17 and Jan 23 from 40.6mn to 61.1mn.  2% of Europe's population (UK 9.3%) and 5.8% of the US's have received one vaccine dose.  For Asia the figure is 0.5% and China 1.04%. The number of fully vaccinated people has risen globally from 2.7mn to 4.9mn.  In Europe the % of the population fully vaccinated is 0.11% (UK 0.69%) and in the US 0.84%.

The noise of the holiday period might have overstated the extent of the decline in economic activity but there is no doubting that the backdrop remains very depressed.  Lockdowns and other restrictions remain the driver of this, with Europe bearing the brunt of the hit.  But high levels of Covid infection continues to dampen the economy even in places where efforts to tackle the virus are less draconian.

As we move into 2021, we are getting a clearer picture into the extent of the slowdown in economic activity that the resurgent Coronavirus has triggered.  Although the Google mobility indices were already indicating a sharp deterioration, the scale of the decline reported through to the turn of the year was exaggerated by holiday effects, as we noted last time.  Data through to the 8th of January, which was released yesterday, gives us a clearer picture of how things stand.  And while it is not quite as bleak as over the Christmas and New Year period, the data still paints a fairly poor picture of global economic health.

December Non-farm payrolls recorded a -140k drop, quite a bit below the markets +71k guess.  This takes the 3m average down to +283k.  Private sector payrolls were a little better than the headline print at -95k, helped by manufacturing which added +38k jobs while the decline in government moderated to -45k.  That was still the fourth consecutive decline but is largely census related.  Despite the headline miss revisions were very positive, +91k in November alone

China

7th January, 2021 » China December FX Reserves

December saw a further solid increase in Chinese FX reserves, the headline holdings number rising US$38.03bn m/m to US$3,216bn.  Again more than half of the rise can be attributed to valuation adjustments as the US dollar continued to depreciate against the balance of the PBoC’s reserve holdings.

The re-acceleration of Covid infections has hit mobility hard over the past two weeks.  Although there are clearly seasonal factors at work (which the Google data series do not account for), we’ve clearly seen a pronounced deterioration in both mobility and economic activity above and beyond what could have been normally expected. This has been concentrated in Europe, with a particularly severe drop in Germany where our economic activity measure suggests things are even worse than at the peak of the crisis last April.  Italy and the UK have also registered steep falls, while Spain and France have seen more modest drops.

The ECB’s fingerprints remain all over the Eurozone money supply and credit numbers, with M3 hitting 11% yoy in November, the strongest reading we’ve seen thus far. This continues to be propelled by M1 which is up 14.2% yoy, overnight deposits up €1.053trn year-to-date.  We’ve also hit something of a milestone with overall M3 now back at pre-GFC/EZ debt crisis trend levels.

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