The Market Today
Markets Calm Early After Volatile Thanksgiving Week
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Chicago Fed Index Remains Modest: The Chicago Fed’s National Activity Index rose from 0.14 to 0.24 in October keeping the 3-month average at 0.30. The CFNAI is an aggregation of 85 different economic indicators including reports on 1) production and income, 2) the labor market, 3) personal consumption, 4) housing, and 5) sales and inventories. The index remains below the thresholds typical associated with an over-heating economy. For context, when the CFNAI’s three-month average is above +0.70 following an expansion (or a one-month reading above 1.00), a period of more rapid inflation is expected to occur. At 9:30 a.m. CT, the Dallas Fed will release its November Manufacturing Index.
Back-Loaded Calendar Brings PCE Inflation, Personal Income and Spending: After a slow start, this week’s calendar will bring several important reports later in the week. October’s advance goods trade balance data, October’s new home sales report, and the first revision to 3Q GDP are all scheduled Wednesday. The trade data has had a significant impact on the last two GDP reports as importers/exporters try to work around the imposition of tariffs. Fed Chair Powell is also scheduled to speak on Wednesday.
Thursday will bring October’s pending home sales figures, the FOMC Minutes from their September meeting, and the headline data of the week – October’s PCE inflation, personal income, and personal spending. Inflation has been running slightly softer than expected; and, with economic activity dependent on a strong U.S. consumer, the income and spending figures will be important.
Economists’ expectations are for a fairly good week of economic news.
Overnight – Solid Start After Shaky Thanksgiving Week: Markets have started the week off solidly after a disappointing run last week weighed on stocks (S&P -3.8%) and sent oil prices spiraling lower (-11.2%). Equities are mostly higher with the strongest moves up seen in Europe while U.S. WTI has added 1.8% to move back above $51 per barrel. Italian stocks were leading after a report suggested the country’s government was open to adjusting next year’s budget deficit to keep the EU from moving forward with any fines or penalties aimed at correcting its fiscal posture. Italy’s FTSE MIB was 2.7% higher while the area-wide Stoxx Europe 600 traded up 0.9%. Italian yields were down more than 14 bps inside of 10-years. Brexit developments also boosted spirits after the EU officially signed off on the recently-negotiated separation agreement with the U.K. While Sunday’s stamp of approval is a critical step in moving the process forward, PM May still faces an uphill battle of getting parliamentary buy-off from a group of lawmakers severely fractured over the appropriate way to bow out of the bloc. The firmness in risk assets Monday has helped pushed core yields in the region higher and lift Treasury yields after last week’s decline. The 2-year yield was up 2.5 bps (2.83%), the 5-year yield had added 2.7 bps (2.89%), and the 10-year yield (3.06%) was 2.4 bps higher. U.S. futures were stronger against the Monday’s friendly global trend, with Nasdaq contracts up 1.6% while the Dow and S&P 500 both rose more than 1%.
ICYMI – November 23, 2018 Weekly Market Recap: Last week was short on U.S. trading days but not on meaningful market moves. While meal planning and post-Turkey tryptophan-induced naps seemed to keep Treasury traders sidelined, other markets were wide awake with notable volatility and several market milestones. The 10-year Treasury yield moved within just a 6.4 bps high-low trading range for the three-and-a-half days it was open, the third least volatile Monday-to-Friday of 2018. However, equities sold off early, with back-to-back greater-than-1.5% losses to start the week fully erasing the Dow and S&P 500’s year-to-date gains. Continued uncertainty in the tech space seemed to spark the selling, although losses for energy companies led the way on Tuesday. Crude’s price collapse continued as U.S. inventories continued to grow and Saudi production hit record levels despite OPEC trimming their demand outlook for next year. West Texas crude sank over 10% leaving the commodity deeper in bear market territory, down more than 33% from its early-October peak, and around $51 per barrel, its lowest level in over a year. As for the data, most reports came before the Thanksgiving break, were focused on housing, and were disappointing. Business spending continued to lose momentum in October based on the capital goods portion of the most recent durable goods orders report. Housing still looks soft, with home builder confidence sliding the most since 2014 to the lowest level since 2016. Housing starts and permits, specifically in the single family series, continued to struggle and, despite a better-than-expected monthly increase, existing homes sold at the second weakest pace since 2016. Click here to view the full recap.