Economics

Weekly — February 26, 2021

 

Weekly Economic & Financial Commentary

 
 
U.S. Review
The U.S. Economy Continues to Start 2021 on a High Note
• In January, personal spending increased at a robust 2.4% pace, while personal income soared
10.0%. The core PCE deator rose 0.3% during the month and 1.5% over the year. Fed Chair Powell
testied in front of Congress and underscored the FOMC's commitment to keep monetary policy
accommodative, as the U.S. economy continues to recover from the COVID crisis.
• Pending home sales dropped 2.8% in January, reecting some moderation in the housing market.
Durable goods orders jumped 3.4% in January, besting consensus estimates. Jobless claims
unexpectedly fell to 730K during the week ending February 20. The Leading Economic Index (LEI)
jumped 0.5% in January. Consumer sentiment (University of Michigan) dipped to 76.8 in February.

Global Review
Central Banks on Hold This Week
• The Reserve Bank of New Zealand (RBNZ) met this week to discuss policy, opting to maintain its
Ocial Cash Rate at 0.25% and leaving its Funding for Lending program and Large Scale Asset
Purchase program unchanged. Separately, the New Zealand government instructed the RBNZ to
keep house price sustainability in mind when making its policy decisions.
• The Bank of Korea also held policy steady, leaving its seven-day repo rate unchanged at 0.50%,
a record low. The central bank maintained its growth forecasts, but noted that its ination
expectations for 2021 have risen.
• The Swedish economy unexpectedly contracted in the fourth quarter of 2020, driven mainly by a
fall in household consumption and changes in inventories.
 
Wells Fargo Securities U.S. Economic Forecast
Actual Forecast Actual Forecast
2020 2021 2019 2020 2021 2022
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
q12021 q12021

1
Real Gross Domestic Product -5.0 q12021

-31.4 q12021

33.4 4.0 4.9 8.3 8.3 6.7 2.2 -3.5 6.2 5.1
Personal Consumption -6.9 q12021

-33.2 q12021

41.0 2.5 4.7 11.7 10.4 7.6 2.4 -3.9 7.4 5.7
q12021 q12021

q12021 q12021

Inflation Indicators 2 q12021 q12021

PCE Deflator 1.7 q12021

0.6 q12021

1.2 1.2 1.8 2.8 2.4 2.5 1.5 1.2 2.4 2.0
Consumer Price Index 2.1 q12021

0.4 q12021

1.3 1.2 1.8 3.4 2.7 2.8 1.8 1.2 2.7 2.4
q12021 q12021

q12021 q12021

Industrial Production 1 -6.8 q12021

-42.6 q12021

43.3 10.0 8.0 7.0 6.7 5.5 0.9 -6.6 7.3 5.2
2
Corporate Profits Before Taxes -6.7 q12021

-19.3 q12021

3.5 2.5 15.6 33.0 6.5 6.0 0.3 -5.0 14.2 4.9
Trade Weighted Dollar Index 3 112.8 q12021

110.4 q12021

106.6 103.3 103.5 103.3 102.5 102.0 110.2 109.1 102.8 100.8
Unemployment Rate 3.8 q12021

13.1 q12021

8.8 6.8 6.4 6.2 5.9 5.6 3.7 8.1 6.0 4.9
4
Housing Starts 1.48 q12021

1.08 q12021

1.43 1.59 1.53 1.49 1.47 1.48 1.29 1.38 1.49 1.56
q12021 q12021

q12021 q12021

Quarter-End Interest Rates 5 q12021 q12021

Federal Funds Target Rate 0.25 q12021

0.25 q12021

0.25 0.25 0.25 0.25 0.25 0.25 2.25 0.50 0.25 0.25
Conventional Mortgage Rate 3.45 q12021

3.16 q12021

2.89 2.69 2.90 3.05 3.20 3.30 3.94 3.12 3.11 3.51
10 Year Note 0.70 q12021

0.66 q12021

0.69 0.93 1.20 1.35 1.50 1.60 2.14 0.89 1.41 1.81
q12021 q12021

Forecast as of: February 19, 2021

1 3
Compound Annual Growth Rate Quarter-over-Quarter Federal Reserve Advanced Foreign Economies Index, 2006=100 - Quarter End
2 4
Year-over-Year Percentage Change Millions of Units
5
Annual Numbers Represent Averages

Source: Fed. Reserve Board, IHS Markit, U.S. Dept. of Commerce, U.S. Dept. of Labor, and Wells Fargo Securities

All estimates/forecasts are as of 2/26/2021 unless otherwise stated. 2/26/2021 13:01:05 EST. Please see page 10 for rating denitions, important disclosures and required analyst certications.
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the rm may have a conict of interest that could
aect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
This report is available on Bloomberg WFRE
Weekly Economics

Personal Saving Rate

U.S. Review 35%
Disp. Personal Income Less Spending as % of Disp. Income
35%

The U.S. Economy Continues to Start 2021 on a High Note Personal Saving Rate: Jan @ 20.5%

30% 30%
Most of the economic data released this week handily beat market expectations, which
is just the latest sign that the economic recovery is regaining momentum after slowing 25% 25%

toward the end of 2020. During January, personal spending increased at a robust 2.4% 20% 20%

pace. The strong monthly gain in consumption arrived alongside a 10.0% surge in personal
incomes. Many households received a second round of pandemic-relief checks during the 15% 15%

month, which helped provide a jolt to consumer spending. The saving rate shot up to 20.5% 10% 10%

from 13.4%, which we expect to help propel consumer spending forward in the months to
5% 5%
come. The latest estimate of Personal Consumption Expenditure (PCE) deator was also
reported in the personal income and outlays report. The core PCE deator, which is the 0%
92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
0%

Fed's preferred measure of consumer price ination, rose 0.3% during the month and 1.5% Source: U.S. Department of Commerce and
over the year. This outcome is slightly ahead of market expectations but still well below the Wells Fargo Securities
Fed's 2% ination target.
S&P CoreLogic Case-Shiller Home Price Index
The Fed Appears Unmoved by Rising Long-Term Rates 24%
Year-over-Year Percent Change
24%

Fed Chair Powell underscored the FOMC's commitment to keep monetary policy National HPI: Dec @ 10.4%
Composite-10: Dec @ 9.8%
S&P/Case-Shiller Composite-20: Dec @ 10.1%
accommodative as the U.S. economy continues to recover from the COVID crisis. Powell 16% 16%

appeared in front of Senate Banking Committee on Tuesday and the House Financial
8% 8%
Services Committee on Wednesday, and emphasized that “the economy is a long way
from our employment and ination goals, and it is likely to take some time for substantial 0% 0%

further progress to be achieved.” Powell's comments arrived against a backdrop of rising

long-term rates and ination expectations. However, in our view, this is just the latest piece -8% -8%

of evidence that the Fed is unlikely to alter the pace of asset purchases or lift the federal
-16% -16%
funds target rate for the foreseeable future.
Powell also commented on the white-hot housing market. Over the past few months, -24%
01 03 05 07 09 11 13 15 17 19 21
-24%

low mortgage rates have led to surging home sales. With relatively scarce supply on Source: S&P CoreLogic and Wells Fargo
the market, home price appreciation has heated up considerably. In December, the S&P Securities
CoreLogic National Home Price Index accelerated to a 10.4% year-over-year pace, the
fastest since 2014. There were some signs of cooling in the housing market this week.
During the week ending February 19, mortgage applications for purchase declined 11.6%,
the third straight decline. Pending home sales, which lead existing sales by a month or
two, dropped 2.8% in January. Mortgage rates have moved slightly higher in recent weeks,
which partially explains some of the recent pullback. For more insight on this, please see
the Credit Market Insights section.
Durable Goods New Orders
Business Spending on the Upswing 24%
Month-over-Month Percent Change
24%

Meanwhile, manufacturing and business spending on equipment also appears to be o 20%

Orders: Jan @ 3.4%
20%

to a strong start in 2021. Durable goods orders jumped 3.4% in January, well ahead of 16% 16%

consensus estimates. Nondefense capital goods shipments rose 3.5%. Civilian aircraft lifted 12% 12%

both orders and shipments as Boeing restarted deliveries of the 737-MAX. The strength in 8% 8%

durable goods extended beyond aircraft, with solid gains in primary and fabricated metals, 4% 4%

computers and related products, as well as transportation equipment. 0% 0%

-4% -4%

Several indicators released this week also point to the recovery gaining additional steam in -8% -8%

February. Initial jobless claims unexpectedly fell to 730K during the week ending February -12% -12%

20, which is the lowest level since November. The drop in claims is probably overstated -16% -16%

somewhat by the harsh winter weather that much of the country experienced last week. -20%
04 06 08 10 12 14 16 18 20
-20%

Some of the decline, however, may reect genuine improvement as operating restrictions Source: U.S. Department of Commerce and
on businesses have been relaxed and consumer spending has improved in recent weeks. Wells Fargo Securities

That said, the path forward is not without hazards. The University of Michigan's measure
of consumer sentiment dipped to 76.8 in February, a six-month low. Both the current
conditions and expectations gauges of sentiment slipped during the month. Overall,
the monthly drop is a reminder that, even though new COVID case counts appear to be
receding alongside an accelerated pace of vaccinations, the pandemic is still weighing
heavily on households.

2 | Economics
Weekly Economic & Financial Commentary Economics

U.S. Outlook
ISM Manufacturing • Monday ISM Manufacturing: Prices & Delivery Times
Diffusion Index
Manufacturing has continued to grow at an impressive pace, 100 100
buoyed by the shift in demand for goods amid the pandemic. But
90 90
as the productive capacity of the economy has struggled to keep
up with the pivot to goods spending, there have been a series 80 80
of bottlenecks in the sector. Ongoing supply disruptions have
70 70
kept order backlogs rising, which will keep activity humming in
the near term as will low levels of customer inventories. Supply 60 60
constraints will also add to price pressure, and we expect the prices
50 50
paid component continued to grow at a rapid clip in February.
Multiple manufacturing industries have cited labor shortages as a 40 40
problem in recent months, and we expect labor remained dicult to
30 30
nd in the sector in February. Orders likely continued to roll in this
month, but components tied to supply constrains like the supplier 20 20
deliveries, backlogs and prices paid indices should also push the ISM
10 ISM Prices Paid Index: Jan @ 82.1 10
manufacturing index higher for February.
ISM Supplier Deliveries Index: Jan @ 68.2
0 0
Previous: 58.7; Wells Fargo: 59.0 00 02 04 06 08 10 12 14 16 18 20

Consensus: 58.6 Source: Institute of Supply Management and Wells Fargo Securities

ISM Services • Wednesday ISM Services

Composite Diffusion Index
After service activity surprised to the upside in January, we 65 65
ISM Services Index: Jan @ 58.7
expect activity continued at a similar pace in February. The rapidly 12-M Mov. Avg.: Jan @ 54.6
improving public health situation is particularly encouraging for
60 60
the sector, which has been disproportionately aected during the
pandemic. Bottlenecks are aecting the service industries similar
to manufacturing, evident in increased backlogs. Labor shortages 55 55
have also been reported as a constraint in the sector, but the
employment component likely continued to improve in February
50 50
and will be indicative of what to expect from the ocial U.S. payroll
report released a few days later. The ISM services index may give
up some ground, but we expect it to remain solidly in expansion 45 45
territory.
Previous: 58.7; Wells Fargo: 58.5 40 40

Consensus: 58.7
35 35
00 02 04 06 08 10 12 14 16 18 20
Source: Institute for Supply Management and Wells Fargo Securities

Economics | 3
Weekly Economics

Employment • Friday
U.S. Nonfarm Employment Forecast
Easing COVID restrictions and the ow-through of December's Change in Employment, In Thousands
6,000 6,000
scal support package likely helped the labor market recovery Monthly Change: Feb WFS Forecast @ 210K
regain momentum in February. Jobless claims trended lower 5,000 5,000
heading into the survey week, while regional purchasing manager
4,000 4,000
indices rmed over the month. With the polar vortex that ground
activity to a halt in parts of the country hitting after the survey 3,000 3,000
week, we expect to see payrolls climb 210K.
2,000 2,000
Despite stronger hiring, we expect the unemployment rate to
1,000 1,000
remain unchanged after declining sharply to 6.3% in January. An
increase in the labor force participation rate, however, would not 0 0
be surprising and would signal some underlying improvement. A
-1,000 -1,000
more balanced composition of hiring, with leisure & hospitality
in particular beneting from declining COVID cases, points to a -2,000 -2,000
modest monthly increase in average hourly earnings of 0.2%. -20.6K
-3,000 Apr-2020 -3,000
Another soft report akin to January would underscore that the
-4,000 -4,000
labor market recovery still has a very long road ahead, and a quick Jan-20 Apr-20 Jul-20 Oct-20 Jan-21
snapback is far from assured despite rising optimism around the
Source: U.S. Department of Labor and Wells Fargo Securities
broader growth outlook. A signicantly better-than-expected
report, however, would suggest that the more constructive outlook
is warranted and the recovery has legs under it that extend beyond
temporary scal support measures.
Previous: 49K; Wells Fargo: 210K
Consensus: 145K

Trade Balance • Friday

U.S. Exports & Imports
Purchasing manager indices in foreign economies indicate activity Billions of USD
$300 $300
held up in January, and the advanced merchandise trade data

Thousands
Exports: Dec @ $190.0B
suggest exports rose 1.4% during the month. A more stable global Imports: Dec @ $256.6B
backdrop and improvement on the vaccine front suggest overall
$250 $250
prospects for 2021 global growth are rising. Strong domestic
U.S. demand for retail goods and vehicles likely also kept imports
growing, as did more positive expectations regarding consumption
and still-lean retail inventories. Merchandise imports are set to rise $200 $200

around 1% based on the advanced trade report. Strong imports are

also underscored by the anecdotal reports of cargo surges causing
congestion at ports across the nation. $150 $150

We look for the trade decit to widen slightly in January. A larger-

than-expected widening in the decit could suggest even more $100 $100
domestic stockpiling than we are expecting. A smaller widening or
even a narrowing in the decit would suggest the global economy is
nding rmer footing. $50 $50
00 02 04 06 08 10 12 14 16 18 20
Previous: -$66.6B; Wells Fargo: -$67.2B
Source: U.S. Department of Commerce and Wells Fargo Securities
Consensus: -$67.3B

4 | Economics
Weekly Economic & Financial Commentary Economics

International Review NZD/USD Exchange Rate

Central Banks on Hold This Week 0.80 0.80

The Reserve Bank of New Zealand (RBNZ) opted to maintain the current policy settings, 0.75 0.75
holding the Ocial Cash Rate (OCR) at 0.25%. It also maintained the size of its Large
Scale Asset Purchase (LSAP) program at NZ$100B and left its Funding for Lending 0.70 0.70
Program (FLP) operation unchanged, as expected. The central bank indicated that it
remains prepared to provide additional stimulus measures if needed, including taking 0.65 0.65
the OCR negative. It also noted that prolonged monetary stimulus and considerable
time and patience is needed until it is condent that ination is sustained at its 2% 0.60 0.60
target midpoint and employment is at or above its maximum sustainable level. In the
accompanying statement, the central bank noted that demand in tourism-related sectors 0.55
NZD/USD: Feb-25 @ 0.74
0.55

remain weak, and it does not look for borders to re-open until 2022. However, the RBNZ 2017 2018 2019 2020 2021

did acknowledge that the economic rebound has been stronger than expected, and its Source: Bloomberg LP and Wells Fargo
new forecasts reect an improved economic outlook. The central bank now looks for Securities
2021 GDP growth to rebound 3.7%, up from 3.4% in the November forecasts, while
the unemployment rate is now expected to reach 5.2%, down from 6.4%. Following the South Korea 7-Day Repo Rate
announcement, the New Zealand dollar initially fell, but soon recovered as analysts looked 3.50% 3.50%
toward the RBNZ’s unconstrained OCR forecast, which was revised higher, hinting that less
stimulus measures may be needed going forward. 3.00% 3.00%

2.50% 2.50%
Separately, the New Zealand government instructed RBNZ to consider the impact on
the housing market when setting interest rates, with the new remit set to go into eect 2.00% 2.00%

on March 1. The central bank’s targets to maintain stability in ination and contribute to 1.50% 1.50%
maximum employment remain unchanged, and the committee still maintains autonomy
over its decisions; however, the central bank is now required to also regularly explain the 1.00% 1.00%

impact of its policy decisions on the government’s housing objectives. Following the news 0.50% 0.50%

of the replacement remit, the New Zealand dollar jumped as investors see less scope for 7-Day Repo Rate: Feb-26 @ 0.50%

expansionary monetary policy. 0.00%

10 11 12 13 14 15 16 17 18 19 20 21
0.00%

Source: Bloomberg LP and Wells Fargo

The Bank of Korea (BoK) held its seven-day repo rate at 0.50%, a record-low, at its policy
Securities
meeting this week, as expected. The central bank indicated that the Korean economy
has continued to recover modestly and is likely to continue to recover going forward,
with the recovery led by exports and investments. That said, the BoK maintained its
growth forecasts, looking for GDP growth to be around 3% and 2.5% in 2021 and 2022,
respectively. It also noted its ination expectations have risen for 2021, now looking for
CPI at 1.3% from 1% in November. Meanwhile, BoK Governor Lee noted that the economic
path remains dependent on the vaccine rollout and reiterated the central bank’s plan to
keep monetary policy accommodative.
Sweden GDP
Swedish Economy Unexpectedly Contracted in Q4 8%
Quarter-over-Quarter Percent Change
8%

The Swedish economy unexpectedly contracted in the fourth quarter of 2020, driven
6% 6%
mainly by a fall in household consumption and changes in inventories. GDP growth declined
0.2% quarter-over-quarter in Q4, compared to the Q4 GDP indictor which increased 4% 4%

0.5%. The fourth quarter results followed a strong rebound in Q3 as growth jumped 4.9% 2% 2%

quarter-over-quarter, as COVID cases were largely contained during summer. The details 0% 0%

of the report indicated that full-year 2020 GDP decreased 2.8% compared to 2019, still a
-2% -2%
milder contraction than other European economies. Household nal consumption dropped
0.8%, with decreased housing expenses and consumption of hotel and restaurant services -4% -4%

contributing to the downturn. Inventories also weighed on headline GDP as changes in -6% -6%

inventories took o 0.7 percentage points from growth. On the ip side, net exports -8%
GDP: Q4 @ -0.2%
-8%

contributed upwards to growth, adding 0.8 percentage points, while households' real 00 03 06 09 12 15 18

disposable income increased 2.5%. Despite the underwhelming GDP print, more timely Source: Bloomberg LP and Wells Fargo
data suggest the Swedish economy is starting to pick up. In a separate release, January Securities
retail sales surged 3.4% month-over-month, exceeding market expectations for a 2%
increase, while condence indicators continued to improve in February.

Economics | 5
Weekly Economics

International Outlook
China Purchasing Manager Indices
China Manufacturing and Non-manufacturing PMI • Monday 60
Above 50 Indicates Expansion
60

For most of past year, China’s economy outperformed and was the only major economy to
experience positive growth. We expect China to record another strong year of economic 55 55

growth in 2021; however, new COVID outbreaks in China led the government to impose 50 50

new lockdown measures in an eort to limit the spread of the virus. Given the recent
45 45
COVID disruptions, Chinese PMI data slipped in January. The manufacturing PMI dipped
to 51.3, while the non-manufacturing PMI declined to 52.4. Although both indicators 40 40

remain in expansion territory (above the 50-level), if COVID cases rise and the government 35 35
implements stricter restrictions, as a result, the PMI data could slow going forward. Next
week’s data are expected to soften further with the consensus looking for the February 30
Manufacturing PMI: Jan @ 51.3
30

manufacturing PMI to slip to 51.0, while the non-manufacturing PMI is expected to fall 0.4 25
Non-Manufacturing PMI: Jan @ 52.4
25

points to 52.0. 11 12 13 14 15 16 17 18 19 20 21

Source: Bloomberg LP and Wells Fargo

Previous: 51.3 & 52.4 Securities

Consensus: 51.0 & 52.0 (Manufacturing & Non-manufacturing PMI)

Eurozone Inflation
Eurozone CPI • Tuesday 5%
Year-over-Year Percent Change
5%

The Eurozone economy remained resilient at the end of last year, as the economy shrank CPI: Jan @ 0.9%
Core CPI: Jan @ 1.4%

less than expected; however, further economic softness followed by a slow recovery 4% 4%

appears likely this year. Although, deationary risks appear to have lessened slightly for
3% 3%
now. The January Eurozone ination report indicated headline CPI jumped 0.9% year-
over-year from a 0.3% decline the previous month, while core ination—a measure which 2% 2%

excludes alcohol and tobacco prices—was also higher, rising 1.4% year-over-year. Looking
ahead to next week, we expect February Eurozone headline CPI rose 1.0% year-over-year, 1% 1%

remaining in positive territory for a second month in a row.

0% 0%

Next week, the January retail sales report is also due. In December, retail sales rose 2.0%
month-over-month, against estimates for a 2.8% rebound, and came after a November -1%
99 03 07 11 15 19
-1%

sales slump. Source: Bloomberg LP and Wells Fargo

Securities
Previous: 0.9%; Wells Fargo: 1.0%
Consensus: 1.0% (Year-over-Year)
Australian GDP
Australia Q4 GDP • Tuesday 6%
Quarter-over-Quarter Percent Change
6%

Next week, Australia reports fourth quarter GDP data. The Australian economy grew at a
faster-than-expected pace in Q3, rising 3.3% quarter-over-quarter, and marked the largest 3% 3%

quarterly rise since 1976. Data over the quarter were a bit mixed as Australia experienced
the emergence of COVID clusters in some cities, including Sydney and Brisbane, leading 0% 0%

the government to impost new health orders to limit the spread of the virus. After a
surge in November retail sales, households pulled back spending in December. Retail sales -3% -3%

plunged 4.1% month-over-month, with ve of the six retail categories recording a fall.
Other data over the quarter were more encouraging, however, as employment jumped by -6% -6%

90,000 in November, while the December labor market report showed unemployment fell
to 6.6%, exceeding market expectations. In December, employment also rose by 50,000, -9%
GDP: Q3 @ 3.3%
-9%

with about 90% of the jobs lost between March and May recouped. Looking ahead, analysts 2000 2005 2010 2015 2020

expect Q4 GDP growth to increase 2.4% quarter-over-quarter. Source: Bloomberg LP and Wells Fargo
Securities
Previous: 3.3%
Consensus: 2.4% (Quarter-over-Quarter)

6 | Economics
Weekly Economic & Financial Commentary Economics

Credit Market Insights 30-Year Mortgage Rate and 10-Year Treasury

Will Higher Mortgage Rates Derail Housing? 20% 20%
10-Year Treasury Yield: Feb @ 1.25%
Bond yields have been on a tear in recent weeks, as market Conventional 30-Year Fixed Mortg. Rate: Feb @ 2.81%
participants price-in the expectation for faster economic growth
16% 16%
and ination over the coming quarters. The yield on the 10-year
Treasury note, which fell to only 0.50% in early August, had been
rising slowly through the back half of last year. But, the sello
has accelerated in recent weeks, and the yield on the benchmark 12% 12%

Treasury note rose to its highest level in more than a year this week.
The 30-year xed rate mortgage is priced o of the yield on the 10- 8% 8%
year Treasury, and the rise in the former has led to some increase
in the latter in recent weeks. Since notching a record low of 2.65%
in the rst week of 2021, the average 30-year xed rate mortgage, 4% 4%
as tracked by Freddie Mac’s national survey, has risen over 30 bps.
Higher rates already appear to be weighing on some high-frequency
measures of mortgage activity. Mortgage purchase applications 0% 0%
tracked by the Mortgage Bankers Association have fallen in four 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 20
out of the past six weeks. While some of the more recent weakness Source: Bloomberg LP and Wells Fargo Securities
could be the result of disruptions stemming from winter storms
that froze economic activity in many parts of the United States, it
is worth considering if higher rates could slow the ongoing housing
boom.
In our view, higher mortgage rates alone are likely not sucient to
cut o the recent rise in housing demand. Demographic tailwinds
alongside shifts in preferences for more space have driven home
buying higher over the past year and are unlikely to disappear
anytime soon. Moreover, while we expect mortgage rates to rise
over the next two years, we do not anticipate a jump that would
signicantly alter individuals' ability to aord a home. If aordability
problems do arise, it will more likely be the result of low housing
supply, which, alongside strong demand, has been pushing up house
prices at an accelerating rate. Ultimately, even if there is some
moderation in the pace of home buying, we still expect the pace of
home sales to be strong relative to the past decade.

Economics | 7
Weekly Economics

Topic of the Week

Hot Commodities
Crude Oil vs. Metals Spot Price
In recent months, commodity prices have surged ahead, making Monthly Average, Dollars Per Barrel; Index
$140 1,200
marked comebacks from the declines seen last spring. The
Commodity Research Bureau’s (CRB) metals spot price index is as
high as it has been in 10 years after having risen over 200 points $120 1,050

since October with more than half of the gain occurring just since
the start of this year. West Texas Intermediate (WTI) crude oil has $100 900
followed suit and stands at $62.6 per barrel as of this writing, which
is fully recovered to its pre-pandemic price level. While some of this $80 750
month's surge in prices may reect oil supply disruptions from the
storms in Texas, spot prices are more forward-looking and today's $60 600
data are reective of longer-term upward pressures on prices that
were already in place.
$40 450
One of these pressures comes from the evolving COVID
environment, which is paving the way for America to get back to $20 300
work. Bloomberg’s vaccine tracker reports that 68.3 million doses Crude Oil: Feb @ $58.5 (Left Axis)
Metals: Feb @ 1,009.4 (Right Axis)
of the vaccine have been administered in the U.S. That accounts for $0 150
around 30% of doses administered worldwide, and even per capita, 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
the U.S. has set an impressive pace with its distributions. As of Source: Commodity Research Bureau and Wells Fargo Securities
today, the United States has given around 21 doses per 100 people,
which is more than both China (~3 per 100) and the European
Union (~7 per 100) and not far behind the United Kingdom (~29
per 100). U.S. average new case counts have also dropped around
60% over the past two months, outpacing the global case count
drop, which is down around 40%. As vaccinations globally catch
up with countries that are now leading the way, a revitalization of
manufacturing worldwide amid widespread re-openings would
imply greater demand for commodities.

Manufacturing Jumpstart in 2021 Durable Goods Orders

Billions of Dollars
January's consensus-shattering 3.4% rise in durable goods has $300 $300

Thousands
made us feel more condent about our recent upgrade for the
U.S. economy this year. As noted in our prior Weekly Economic $280 $280

and Financial Commentary, the slowing in manufacturing recovery

toward the end of 2020 is giving way to a stronger demand $260 $260

environment so far this year. Beyond the improvements with the

$240 $240
battle against the virus, other factors like backlogged orders and
low inventories give production room to run as manufacturers catch
$220 $220
up from the soft patch at the end of last year. We expect the goods
spending to remain strong throughout 2021 before downshifting
$200 $200
to more moderate growth in 2022. While commodity spot prices
have impressively rebounded up to this point, continued demand $180 $180
from the manufacturing sector will be instrumental in determining
where they land in the next few months. $160 $160
Durable Goods Orders: Jan @ $256.6B
$140 $140
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: U.S. Department of Commerce and Wells Fargo Securities

8 | Economics
Weekly Economic & Financial Commentary Economics

Market Data • Mid-Day Friday

U.S. Interest Rates Foreign Interest Rates
Friday 1 Week 1 Year Friday 1 Week 1 Year
2/26/2021 Ago Ago 2/26/2021 Ago Ago
1-Month LIBOR 0.11 0.11 1.62 3-Month Euro LIBOR -0.55 -0.55 -0.44
3-Month LIBOR 0.19 0.18 1.65 3-Month Sterling LIBOR 0.06 0.06 0.74
3-Month T-Bill 0.04 0.03 1.51 3-Month Canada Banker's Acceptance 0.44 0.44 1.94
1-Year Treasury 0.05 0.02 1.32 3-Month Yen LIBOR -0.08 -0.08 -0.06
2-Year Treasury 0.16 0.10 1.16 2-Year German -0.66 -0.68 -0.70
5-Year Treasury 0.82 0.58 1.16 2-Year U.K. 0.13 -0.01 0.37
10-Year Treasury 1.51 1.34 1.34 2-Year Canadian 0.38 0.23 1.32
30-Year Treasury 2.25 2.13 1.82 2-Year Japanese -0.11 -0.11 -0.19
Bond Buyer Index 2.44 2.17 2.46 10-Year German -0.27 -0.31 -0.51
10-Year U.K. 0.81 0.70 0.50
Foreign Exchange Rates 10-Year Canadian 1.49 1.21 1.22
Friday 1 Week 1 Year 10-Year Japanese 0.16 0.11 -0.09
2/26/2021 Ago Ago
Euro ($/€) 1.212 1.212 1.088 Commodity Prices
British Pound ($/₤) 1.395 1.402 1.291 Friday 1 Week 1 Year
British Pound (₤/€) 0.868 0.865 0.843 2/26/2021 Ago Ago
Japanese Yen (¥/$) 106.500 105.450 110.430 WTI Crude ($/Barrel) 62.37 59.24 48.73
Canadian Dollar (C$/$) 1.267 1.262 1.333 Brent Crude ($/Barrel) 66.14 62.91 53.43
Swiss Franc (CHF/$) 0.906 0.896 0.977 Gold ($/Ounce) 1725.40 1784.25 1640.96
Australian Dollar (US$/A$) 0.775 0.787 0.654 Hot-Rolled Steel ($/S.Ton) 1255.00 1162.00 572.00
Mexican Peso (MXN/$) 20.939 20.429 19.281 Copper (¢/Pound) 418.00 407.40 257.25
Chinese Yuan (CNY/$) 6.479 6.458 7.023 Soybeans ($/Bushel) 14.09 13.80 8.71
Indian Rupee (INR/$) 73.465 72.654 71.663 Natural Gas ($/MMBTU) 2.74 3.07 1.82
Brazilian Real (BRL/$) 5.563 5.388 4.450 Nickel ($/Metric Ton) 19,158 19,114 12,372
U.S. Dollar Index 90.627 90.364 98.996 CRB Spot Inds. 562.62 549.87 456.39

Source: Bloomberg LP and Wells Fargo Securities

Next Week's Economic Calendar

Monday Tuesday Wednesday Thursday Friday
1 2 3 4 5
ISM Manufacturing ISM Services Factory Orders (MoM) Nonfarm Payrolls
January 58.7 January 58.7 December 1.1% January 49K
U.S. Data

February 59.0 (W) February 58.5 (W) January 2.0% (W) February 210K (W)
Construction Spending (MoM) Trade Balance
December 1.0% December -$66.6B
January 0.9% (W) January -$67.2B (W)

China Eurozone South Korea Philippines Brazil

Manuf. & Non-Manuf. PMI CPI (YoY) CPI (YoY) CPI (YoY) Industrial Production (YoY)
Global Data

Previous 51.3, 52.4 Previous 0.9% Previous 0.6% Previous 4.2% Previous 8.2%
Chile Australia
Economic Activity (YoY) GDP (QoQ, SA)
Previous -0.4% Previous 3.3%

Note: (W) = Wells Fargo Estimate (C) = Consensus Estimate

Source: Bloomberg LP and Wells Fargo Securities

Economics | 9
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