Prior to Wednesday, Dec 17th, US stocks had declined six out of seven sessions. But the Fed’s benign language and Janet Yellen’s non-threatening press conference was enough to put in another “V”-shaped bottom, and it was off to the races. The subsequent Wed-Fri rally was the best since March, 2009. For the week, US indices gained an average of more than +3%, with the Small Cap Russell 2000 index leading at +3.8%. Surprisingly, despite the breathtaking rally US indices did not quite recover all of their losses from the prior week, but are nonetheless back to within spitting range of their all-time highs. Canada’s TSX rallied the most in 5 years, gaining +5.4% on the double shot of good news from the US and from the jump in both oil prices and energy company stocks. The Energy stocks in the TSX gained an eye-popping +13% for the week. However, neither Developed nor Emerging International indices fared as well as did the US and Canada. Developed International gained +1.2% for the week, and Emerging International +1.3%, but neither came close to overcoming their prior-week losses of -6.2% and -4.7% respectively.
US economic news was nonthreatening on balance, as has been the norm for some time. Industrial production rose +1.3% vs expectations for a +0.7% increase – the +1.3% gain was the biggest monthly increase since May 2010. Initial jobless claims were reported at 289,000 vs expectations of 295,000. Capacity Utilization came in above 80% for the first time since 2008. The 80% level is often seen by economists as a level at which new capital spending must occur for the creation of additional capacity, with that very spending becoming an economic boost. US manufacturing output rose +1.1% in November, finally surpassing its pre-recession peak. On the negative side, November’s Purchasing Managers Index (PMI) for manufacturing was reported at 53.7, the lowest reading in more than a year, and the PMI for Services fell to 53.6, the lowest in 9 months.
The Canadian dollar fell for the fourth week in a row, to 0.862 US dollars. November Canadian consumer prices rose 2% from the year-ago level, down from the October pace of 2.4% annualized. The modest increase is well within the Bank of Canada’s target range, seen as giving the central bank continued leeway with interest rates.
Eurozone economic data continues to be lackluster. The “flash” Eurozone composite PMI for December was 51.7 vs. 51.1 in November, with the manufacturing reading going from 50.1 to 50.8 and the service sector rising to 51.9 from 51.1. Despite these rises, they remain barely in expansion territory (50 is flat). The readings for the two biggest Eurozone economies, Germany and France, were dispiriting as well. France saw its manufacturing PMI fall to 47.9 when an increase had been expected, while Germany’s composite PMI rose to 51.2 from 49.5, but the services PMI fell from 52.1 to 51.4. Deflation remains a major concern as euro area inflation for November was just 0.3% annualized, vs. 0.4% in October and 0.9% a year ago. Prices declined in Greece (-1.2%) and Spain (-0.5%), while they rose just 0.4% annualized in France and 0.5% annualized in Germany.
In China, the government has declared that small particles from the smog in many Chinese cities have surpassed smoking as the primary cause of skyrocketing lung cancer diagnoses. Lung cancer now tops the list of all cancers in China, and has been increasing at an annual clip of almost 27% in recent years according the China’s National Cancer Registration Center. It is most likely no coincidence that the rate of lung-cancer cases in Beijing, which is plagued by some of the nation’s worst smog, went from 39.6 per 100,000 in 2002 to 63.1 in 2011, an increase in rate much higher than the national average.
Amazon has done a great – if so far unprofitable – job of becoming the dominant online retailer. Its “Amazon Prime” service, incorporating free shipping, special discounts, and music/video streaming services, has jumped in popularity, rising from 20 million members to almost 60 million just in 2014.