The Market Today
Cyber Monday Expected to Continue Last Week’s Online Boom
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Busy Week Covering Broad Swath of Economy, Tax Reform, Holiday Shopping: This week’s economic calendar is packed with reports covering home sales (Mon. and Wed.), home prices (Tue.), trade (Tue.), inventories (Tue.), confidence (Wed.), income and spending (Thu.), manufacturing (Mon. and Fri.), construction (Fri.), and auto sales (Fri.). However, the two most insightful reports are likely to be Wednesday’s first revision of 3Q GDP and Thursday’s PCE inflation report for October. Originally estimated at 3.0% growth, subsequent data points to the tally being revised up to 3.2% or better. PCE inflation is expected to tick up from 1.3% YoY to 1.4% (core). While this remains well below the Fed’s target 2.0%, an increase would be a positive sign after the index has dropped in 7 of the last 11 reports, from 1.91% last October to 1.33% this September.
As for today’s calendar, October’s New Home Sales report is scheduled for release at 9:00 a.m. CT. After jumping 18.9% in September, the biggest monthly increase since 1992, sales are expected to pull back 6.2%. Cyber Monday is officially upon us and is expected by some industry analysts to be the single largest shopping day in history. Already, Thanksgiving sales have proven to be good, particularly for online retailers. According to a research report from Bank of America’s economics team, “According to Adobe Analytics, which measures transactions at the largest 100 online retailers, online sales were up by 17.9% YoY for the two-day period. Moreover, there continues to be a shift toward mobile devices, with Commerce marketing firm Criteo finding that 40% of Black Friday online purchases were on mobile phones, up from 29% last year. In contrast, most indications suggest that activity was down at stores. ShopperTrak found that store traffic fell by about 1%. However, these are fairly rough estimates.”
3 Things to Watch Heading into Year-End: Three things to watch as we head into year-end will be 1) how strong consumer holiday purchases are, 2) the tax reform debate, and 3) any developments on inflation. Holiday sales are expected to be very strong this year, potentially providing the fuel for a third consecutive 3% growth quarter for the first time since 2005. Tax reform remains a work-in-progress. The Senate is expected to vote on its bill as early as Thursday but each step thereafter will be increasingly difficult. Getting 50 Senators to coalesce around one plan is proving difficult; President Trump is scheduled to be lobbying Senators this week in another last-minute push. However, reconciliation of the Senate and House plans will be difficult and include some material changes. Trying to keep 50 Senators on board during those changes will likely be the biggest challenge. And with the FOMC acknowledging less certainty about a rebound in inflation, any news on that front could affect investor sentiment. There will be two more inflation reports released this year, November’s CPI and PCE inflation data. But other inputs will also be key to watch: market-based inflation expectations, consumer-based inflation expectations, the value of the Dollar, commodity prices, and the secondary surveys on price expectations.
Overnight Activity – Treasury Curve Resumes Flattening Trend After Thanksgiving Holiday: There is a mildly negative bias in global equities this morning and traditional safe haven assets are a bit firmer in response. Weakness in Chinese stocks led the disappointing start in Asia as rising bond yields in China continued to received heightened attention. European equities initially bucked the softer trends in Asia and remained positive for most of the morning. However, a sharp drop within the last couple of hours has most regional bourses negative for the day and the Stoxx Europe 600 down 0.23%. With equities weaker, gold prices rose with the Yen and longer Treasury yields mover lower with their European counterparts. The 10-year Treasury yield is down 0.9 bps while Germany’s 10-year yield had declined 1.1 bp. But as has been the case in recent weeks, shorter yields remained anchored by expectations for the Fed to continue gradually raising its overnight rate – an expectation reinforced by messaging in last week’s Fed Minutes. The 2-year Treasury yield is up 1.3 bps to 1.76% which has helped push the spread between the 2-year and 10-year Treasury yields to 57.1 bps, a new 10-year low. In currencies, the Dollar slipped to its lowest level in more than two months as the Yen strengthened with the Euro. A gradually increasing trend for the Euro over the last several weeks was likely reinforced by weekend reports that indicated the SPD may have had a change of heart with respect to its participation in a grand coalition with Merkel and the CDU. Oil prices are lower but will remain in focus this week as OPEC convenes Thursday to discuss potentially extending the current production cuts that have helped return oil prices return towards the $60 per barrel range but are set to expire in March.