By Ulf Bergman
As US lawmakers are inching towards a virus-relief deal, the latest sets of economic data provided quite a mixed picture of the current state of the nation’s economy. Contrary to the US equity markets, which are at all-time high levels, the labour market is struggling to regain its traction and posted the largest increase in new fillings for unemployment benefits since the beginning of September. On a seasonally adjusted basis around 885,000 Americans signed up for benefits last week, which was around ten percent higher than the consensus expectations, as virus infection rates soar and new lockdowns are introduced across the country.
On a more positive note, permits for new housing developments surprised on the upside and currently stand at levels not seen since 2006. Actual US housing starts also beat expectations last month, picking up by more than one percent compared to the preceding month.
Source: US Census Bureau
Rising construction in the US will support demand for steel and other building materials, and with a sizeable fiscal stimulus package looking more and more like a foregone conclusion, imports and industrial production are likely to pick up in the early parts of next year in the US as a result. The roll out of vaccines will also support the economy, as it is starting to recover.
Many European countries, most notably Germany, will face a Christmas with extensive social restrictions, which will depress economic activities even further. However, with the European stimulus package having cleared its final hurdles and authorities having decided to further speed up the approval process of the new vaccine, it is likely that the continent’s economy can regain some of its strength in the first quarter of next year.
China’s recent attempts to assert some control over the commodity prices may be offset by resurgent industrial production in Europe and America in the new year, with global demand increasing and remaining high for the foreseeable future. Recovering European and American economies are also likely to start ramping up their domestic output of steel, which could lend further support to the current high iron ore prices. While China is in discussions with some major producers regarding the pricing mechanism for the surging iron ore, it may be more difficult to control the futures markets, where volumes have risen as speculators use the derivatives as a proxy for Chinese economic recovery. Hence, it is debatable if the attempts will yield any great results. Nevertheless, prices for iron ore and other industrial commodities can be expected to remain high, as the supply situation will remain tight for most markets. The pickup in commodity imports around the world will also see more cargoes travelling further to reach their destination, which could contribute to the first quarter being uncharacteristically strong for the shipping markets.