The Market Today

New York Manufacturing Strengthens Despite Stronger Inflation Pressures

by Craig Dismuke, Dudley Carter


Empire Manufacturing Report Reflects Strong Current Activity Despite Strong Current Price Increases: The New York Fed’s Empire Manufacturing Index recovered strongly in November from 19.8 to 30.9, surpassing expectations for a modest improvement to 22.0. After a choppy six-month stretch, November’s gain pushed the headline index up to its third strongest level since 2009 (all in 2021) and near the top-end of its historical range. Shipments were robust and responsible for majority of the gain. However, new orders and employment also posted solid increases; the employment index set a new record high. Although supplier delays moderated, signs of strains remained high and prices paid (second highest) and prices received (highest ever) remain high. The forward-looking indicators were less encouraging. Prices paid and received are expected to rise further over the next six months while indicators tracking activity, employment, and general business conditions all softened notably.

What’s Scheduled for the Rest of the Week: President Biden is expected to sign the infrastructure bill today, shifting focus to debate on the larger Build Back Better plan that faces a more treacherous path through Congress. Tomorrow’s economic calendar is the heaviest of the week and will include October’s retail sales figures, import and export inflation, industrial and manufacturing production, homebuilder confidence, and comments from a host of Fed officials. Additional Fed officials are scheduled to speak throughout the rest of the week, with any remarks about inflationary pressures sure to garner the most attention. Several additional regional Fed reports, the latest update on housing starts and building permits, and the weekly jobless claims data round out a relatively quiet weekly economic calendar.


ICYMI – November 12, 2021 Weekly Market Recap: Treasury yields were jolted higher in the second half of last week by CPI inflation data showing prices rose sharply more than expected in October. Headline prices were 6.2% higher than a year ago, the fastest rate of gain since 1990, while core prices were up 4.6%, the largest year-over-year increase since 1991. Energy and food costs rose again and there continued to be evidence that stronger price increases were becoming more widespread across categories. Treasury yields and market-based inflation expectations climbed quickly in the aftermath of the report, showing investors are increasingly worried about the strong inflation pressures persisting. Inflation was a key driver of the weaker-than-expected readings on economic confidence. The NFIB’s small business optimism index showed businesses’ economic expectations closing in on an all-time low and the University of Michigan’s preliminary reading of consumer confidence for November was abysmal, dropping unexpectedly to a 10-year low. The inflation story dominated the market news cycle and overshadowed other notable events that occurred throughout the week. The House finally passed the Senate’s infrastructure bill ahead of last week’s trading session. Fed Governor Quarles announced he was resigning at the end of the year, opening up another vacancy for President Biden to fill. Fed Governor Brainard is reportedly a serious contender to be appointed by the president to lead the Fed. And the latest JOLTS data signaled the labor market is increasingly tight. The 2-year and 10-year Treasury yields rose roughly 11 bps on the week while the 5-year yield added 16 bps to 1.22%, the second highest close since February 2020. The inflation scare and move up in rates ended an eight-day record run for the S&P 500, the longest positive stretch for the index since 2004. Click here to view the full recap.


Markets Quiet after Big Moves Last Week on Hot Inflation Data: Global sovereign yields settled down on Monday following sharp swings last week spurred by hot U.S. inflation data (more above) and equities were moving in different directions. Stocks were mixed across Asia and declined in China despite solid economic data. While investment figures disappointed, retail sales and industrial production in October topped expectations. In Japan, economic activity contracted at an annualized 3.0% rate in the third quarter, a worse result than the 0.7% decline expected. The Bank of Japan is one of the few central banks that hasn’t been forced to contemplate tightening, as the country’s recovery has been less convincing and inflation pressures remain nonthreatening. Europe’s Stoxx 600 was just north of unchanged before 7 a.m. CT. At 7:45 a.m. CT, U.S. equity index futures were between 0.4% and 0.5% higher while the Treasury curve was lower by less than 1 bp inside of the 30-year bond, tracking slightly larger declines in yields across the rest of the world. The 2-year yield slipped 0.8 bps to 0.50%, the 5-year yield dipped 0.8 bps to 1.21%, and the 10-year yield was flat at 1.56%.

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