The Market Today

Disappointing Data Show More Jobless Claims, Fewer Business Equipment Orders Than Expected


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Early-Morning Slate of Data Disappoints: The early slate of data this morning was disappointing as both durable goods orders and initial jobless claims fell short of estimates. Total durable goods orders sank 4.4% (largest since July 2017) versus expectations for a 2.6% decline and the prior two months saw a net negative revision. Combined, the trailing three-month trends was 2.6% worse than expected. Adjusting out a 12-month worst 12.2% drop in aircraft orders, defense and non-defense combined, core durables were a bit better (+0.1%) but still fell short of estimates (+0.4%.) The implications of the October report for business spending were also discouraging. The 4Q trends started weaker than expected as core business equipment orders (future growth activity), expected 0.2%, were unchanged from September. Adding to the disappointment, that September benchmark was revised lower. September’s orders were revised from -0.1% to -0.5%. Shipments of core business equipment, which represent current month growth activity, were the bright spot of a dull report at an as-expected +0.3%. However, shipments from the prior two months were revised down 0.1% each. Those revisions should affect 3Q GDP’s already discouraging 0.4% increase in equipment spending, which marked the weakest since 3Q 2016. In summary, the softness in equipment spending last quarter and the weak start for 4Q reflected in this report will be discouraging to those who had hoped for an obvious tax-cut boost to equipment outlays that could lead quickly to productivity-enhancing benefits to the supply side of the economy.

 

Initial jobless claims were also higher than expected last week and an additional 5k were added to the prior week’s tally in revision. Last week’s 224k initial claims were the highest in more than four months (week of June 29) and the updated four-week average of 218.5k was the highest since early July. Despite some softening in the trend, jobless claims remain indicative of a strong labor market.

 

Although mortgage applications dipped (-0.1%) for a sixth time in the last seven weeks, there was a hint of positivity for a sector searching for the smallest piece of good news. The small monthly decline was driven entirely by a 5.0% drop in the refi index to an 18-year low, while purchase applications actually recovered 3.1%. Still the purchase index remained at one of its weakest levels since the summer of 2016. Although it was small, the MBA’s 30-year contract rate dropped 0.01% from the prior week’s 5.17% rate that marked an 8-year high for the series. The decline to 5.16% was the first in seven weeks.

 

A second round of reports will be released at 9 a.m. CT. The Conference Board’s leading index is estimated to have inched up 0.1% in October which would match its smallest improvement since last September. Recent weakness in the stock market likely weighed on the index. Existing home sales are expected to have rebounded 1.0% in October after falling 3.4% in September. September’s drop was the sixth consecutive MoM decline and the sharpest since February 2016. Finally, economists expect October’s consumer sentiment index from the University of Michigan to be unchanged in revision.

 

TRADING ACTIVITY

Yesterday – Another Dreadful Day for Equities as Oil’s Collapse Adds to Downward Pressure: Long U.S. equity positions haven’t had much to be thankful for so far this week as the major stock indices sold off for a second day in a row. Tech companies continued to flounder near the bottom of the sector ladder but were overtaken by consumer discretionary and energy companies as Tuesday’s worst performers. Shares of Target fell more than 11% to lead weakness across most major retailers after the company’s earnings report disappointed. The S&P 500’s energy sector sank 3.3%, its worst day since October, as crude prices collapsed again. Both Brent and WTI tumbled more than 6% for the first time since last Tuesday. That marks the first time WTI has seen two greater-than-6% declines in a six-day window since the recession. The big drop left WTI down 30% from its early-October peak and below $54 per barrel for the first time since November 2017. But no industry was spared as all 11 sectors of the S&P 500 closed lower, leaving the broader index down 1.82%. The index has moved more than 1% 16 times in the last 30 sessions. The Dow was harder hit, shedding 552 points or 2.2%. Both the Dow and S&P 500 turned negative for the year. The Nasdaq stumbled a smaller 1.7%, managed to hold +0.08% for the year, but ended at its lowest level since April 2. Even with the collapse in oil and another sell-off in the stock market, Treasurys remained relatively stable. The 2-year yield actually rose 1.4 bps to 2.80% despite President Trump again calling the Fed a “problem.” The 10-year yield ended unchanged for a second day in a row. Interesting to note, the 10-year breakeven inflation rate implied by TIPS securities (1.98%) fell below 2% for the first time in 2018.

 

Overnight – Markets Get Some Reprieve From Recent Selling: Global markets were mixed overnight, though several key markets bounced to reverse a small portion of the declines over the last several weeks that have pushed them to recent extremes. Chinese markets were the lone gainers in Asia on Wednesday but, while other markets closed lower they ended in an upward trajectory that had pulled them well off their lows from the beginning of the session. The improving sentiment there developed despite a report Tuesday from the U.S. Trade Representative that said, “China fundamentally has not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and indeed appears to have taken further unreasonable actions in recent months.” The presidents from the two countries are scheduled to meet about trade on November 30. After falling to a 23-month low on Tuesday, the Stoxx Europe 600 rose 0.5% with energy companies near the top. Energy companies benefited from a recovery in crude prices that added 2.1% back to WTI after yesterday’s 6% crash pulled the commodity down to a one-year low. Italian assets were outperforming in Europe notwithstanding the EU taking a step towards possible disciplinary actions in response to “particularly serious non-compliance” of the bloc’s budget rules by Italy’s proposed fiscal plan. U.S. equity futures had shown some signs of life with Nasdaq leading a recovery of the big three, helping push Treasury yields up 1.5 bps to 2.0 bps ahead of this morning’s U.S. economic data. Treasury yields dipped from their highs, but stayed positive, after MNI cited senior Fed officials who claimed the Fed is one or two hikes away from having to make some big decisions that could result in a pause in rate hikes as early as next spring. Treasury yields eased back to unchanged after the disappointing data on jobless claims and durable goods orders.

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2022
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120