The Market Today

TODAY’S CALENDAR

Weekly Mortgage Applications: Despite the Mortgage Bankers Association’s 30-year mortgage rate rising 0.04% to 3.24% last week, weekly mortgage applications rebounded 1.8% following a 2.8% decline. Purchase applications jumped 4.7%, a third consecutive gain and the largest since early September, while refinancing activity edged 0.4% higher after slumping 5.1%. Purchase applications are 15.1% below January’s peak but 19.5% higher than the 2021 low in July.

Weekly Jobless Claims: Seasonally adjusted initial jobless claims fell more sharply than expected for the week ended November 20 while continuing claims improved, but by less than anticipated. While unadjusted new jobless claims rose 18k during the week to 258k, seasonally adjusted claims tumbled 71k to 199k, the lowest level since 1969. Holiday weeks tend to experience volatile reporting. Considering last week included the Veterans Day holiday, the degree of the decline will be viewed skeptically until additional reports confirm. Nonetheless, the 60k drop in continuing claims to 2.05mm two weeks ago reflect continued improvement in the labor market.

Advance Goods Trade Balance: The Advance Goods Trade deficit shrank more sharply than expected in October from a record in September that was revised from -$96.3b to -$97.0b. A $14.1b improvement, the largest in percentage terms since 2009, narrowed the monthly deficit to -$82.9b, the smallest since October 2020 and smaller than the -$95.0b economists expected. Imports rose 0.5% in October while exports surged 10.7%, the largest monthly gain since July 2020. Exports have lagged significantly this year as the U.S. economic recovery raced ahead the rest of the world. Industrial supplies led broad gains across export categories. The October data reflect a stronger-than-expected start for trade-related inputs into 4Q growth tracking estimates. In the same report, wholesale and retail inventories data were mixed.

First Revision to 3Q21 GDP: Growth in the third quarter was revised up from 2.0% to 2.1% in the first revision, a slight miss relative to expectations of 2.2%. Personal consumption, or consumer spending, contributed 0.1% more than initially estimated; a drag from goods spending was smaller than expected while the boost from services was smaller than initially estimated. Fixed investment categories, business spending and residential, were marginally less accretive. The boost from inventories was slightly larger than anticipated but still rounded to a 2.1% contribution. The drag from trade was -1.16% compared with the first estimate of -1.14%. Monitoring inflation’s trajectory, the GDP price deflator jumped at a 5.9% annualized rate in 3Q, hotter than the 5.7% gain initially estimated.

Durable Goods Orders: Durable goods orders fell unexpectedly in October based on the preliminary report with mixed changes seen across the business investment categories. Total durable goods orders fell 0.5% compared to an expected 0.2% gain but rose 0.5% when weaker transportation activity is excluded. Both private and public orders of aircrafts declined by double digits while motor vehicles and parts orders rose 4.8%. Capital goods orders, which track future business equipment investment, rose 0.6%, better than the 0.5% forecasted gain. Shipments of business equipment in October improved 0.3%, short of an expected 0.5% gain. Revisions to prior months were mixed.

Wild Wednesday Calendar Continues: At 9 a.m. CT, the BEA will release personal income and spending data for October in a report that also refreshes the Fed’s preferred PCE inflation measure. Personal income is expected to rise 0.2% after the expiration of federal unemployment benefits led a sharp 1.0% decline in September. Spending is expected to remain strong, up 1.0% in nominal terms and 0.6% when adjusted for inflation. Headline PCE inflation is expected to rise 0.7% MoM and jump from 4.4% to 5.1% YoY, which would match the strongest annual gain since October 1990. Core prices are projected to have risen 0.4% MoM which would lift the YoY rate from 3.6% to 4.1%, the largest increase since January 1991.

At the same time, the University of Michigan will revise its preliminary consumer confidence estimate for November. The initial release showed a surprise decline for headline confidence to a ten-year low. Also at 9 a.m., the Census Bureau will publish new home sales for October. Sales are expected to be unchanged at 800k units after a 14% surge in September, the strongest month since July 2020, pushed the sales pace up from near the bottom of the pandemic range. Finally, at 1 p.m. the Fed will publish the Minutes from its November meeting at which officials announced the start of the tapering process and sounded less confident about their assessment that strong inflation will moderate quickly. Investors will focus in on the inflation discussion as they try to discern how anxious officials are about the current inflation situation and the possible implications that could have on the taper timeline and future path for interest rates.

OTHER ECONOMIC NEWS

Mixed Markit PMIs Show Manufacturing Uptick in November While Services Slows: Markit’s Manufacturing PMI rose from 58.4 to 59.1 in November as expected, while the Services PMI slipped from 58.7 to 57.0, disappointing expectations for a modest gain to 59.0. The pick-up in manufacturing activity broke a three-month decline from July’s peak while the unexpected slowdown for the services sector, despite increased mobility amid less virus concern, kept the PMI well below stronger levels from the first half of the year. The report noted a “sharp upturn in [overall] business activity” early this month but cautioned that “rising prices, poor input availability and challenges finding suitable candidates for vacancies reportedly held back the overall expansion.” The composite new orders index, which combines activity from both sectors, inched higher and supplier delays eased to a six-month low. However, orders backlogs rose at the second highest rate on record, prices paid hit a new all-time high, and the prices received index matched its series record.

Richmond Fed Manufacturing Index Inches Lower: The Richmond Fed’s Manufacturing Index inched down 1 point as expected in November to 11, above weaker readings from August and September but less than half of the average pre-Delta level of 25 from April to July. Many of the underlying details were also little changed in both the current assessment and future expectations. Within the current assessment, supplier delays and prices paid and received all stepped down but remained historically high.

TRADING ACTVITY

Rate Rise Continues: Intermediate and longer-term Treasury yields rose for a second day since President Biden announced he was sticking with Fed Chair Jerome Powell for a second term. Considered the more dovish option, Governor Lael Brainard appeared to be in contention in the final weeks before the decision, leading to some market positioning for a potentially more dovish monetary policy paradigm. Since those positions began to unwind, sovereign yields have risen notably. The 2-year yield did inch lower by 1.6 bps to 0.61% Tuesday, still near its highest level since March 2020. The 5-year yield, however, rose 1.5 bps to 1.34%, a high since February 2020, and is up nearly 12 bps this week. The 7-year yield rose 2.6 bps to 1.58%, despite a solid auction that stopped through by 1 bp. The 10-year yield added another 4.2 bps to 1.67%, closing in on a cycle peak of 1.74% from March, and is up 12 bps this week. Higher rates again drove the Nasdaq down 0.5% while the S&P 500 recovered late to edge 0.2% higher. For a second day, financials were the second best performers amid the higher and steeper rates curve while energy led all gains. U.S. crude and gasoline prices rose more than 2% despite the White House announcing it was releasing crude from the Strategic Petroleum Reserve as part of a coordinated effort with other countries, with some expecting OPEC could pare back planned production increases.

Global markets were mixed early Wednesday as investors continued to contemplate this week’s rise in interest rates ahead of a deluge of U.S. economic data. Just prior to the 7:30 a.m. CT wave of reports, equity index futures were down around 0.35% on average while Treasury yields were essentially flat on the day. After the rush of data, Treasury yields were higher by roughly 2 bps across the curve inside of thirty years.

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