The Market Today
Stocks Back to Record Highs Ahead of Busy Data Day
by Craig Dismuke, Dudley Carter
Today’s economic calendar is packed with important data including key reports on consumer strength and the Fed’s preferred measure of consumer inflation.
Key Readings on Consumer Health: At 9:00 a.m. CT, November’s personal income and spending report from the BEA is expected to show income bounce higher after October’s stagnation, and personal spending gain 0.4% MoM. Last week’s retail sales report showed a little slowing for the consumer raising the importance of today’s data. Also at 9:00 a.m., the University of Michigan’s final revision on consumer confidence is expected to show sentiment closing the year near its high-water mark.
Inflation Even Softer?: Also at 9:00 a.m., November’s core PCE inflation is expected to drop further below the Fed’s 2.0% target, dropping from 1.6% to 1.5%YoY.
3Q GDP Holds at 2.1%, Consumption Gains Solid 3.2%: The 3Q GDP report was finalized this morning with growth holding at 2.1% QoQ, SAAR. However, the underlying data saw some hefty revisions including personal consumption’s tally being raised from 2.9% to 3.2%. Along with the even-stronger consumer, business investment was revised up from -2.7% to -2.3%. Dragging the headline GDP tally back down to 2.1% was a $10.4 billion reduction in inventory accumulation.
Stocks Returned to Records after a Pause: Stocks appeared reenergized Thursday following Wednesday’s pause while Treasury yields stalled after flirting with the top end of recent ranges. The S&P 500 rallied 0.4% to close near its highest tick of the day and at another all-time record high. While the climb was mostly steady after a strong open, a notable mid-morning jump occurred after Treasury Secretary Mnuchin confirmed that he expects phase-one trade agreement between the U.S. and China to be signed in early January. Sticking with trade, the House passed the updated USMCA shortly after equity markets closed, advancing the North American trade deal on to the Senate.
U.S. Yields Diverged from Global Rates as U.S. Data Disappointed: Treasury yields ended the day little changed, erasing an overnight rise following several weaker-than-expected U.S. economic reports. Yields rose overnight after the central banks in England and Japan left policy unchanged in decisions that sounded slightly more optimistic about the outlook. Also making headlines, Sweden’s Riksbank raised its repo rate from -0.25% to 0.00%, becoming the world’s first central bank to attempt an exit from the hotly debated unconventional policy of negative bank rates. While the global yield rise held, Treasury yields moved lower after jobless claims fell less than expected, the Philadelphia Fed’s business index dropped more than expected, and existing home sales disappointed (more below). The 2-year yield finished the day unchanged at 1.63% while the 10-year yield added 0.4 bps to 1.92%.
Global Sentiment Remains Firm on Friday: Market sentiment remained firm Friday after U.S. stocks resumed their move higher yesterday and set another round of records. While equities moved in different directions in Asia, Europe’s Stoxx 600 was 0.5% higher and U.S. futures were leaning into positive territory a few minutes after 7 a.m. The net positive push kept an index of world stocks near record highs heading into the weekend. Yesterday’s advancement of the USMCA from the House to the Senate added to broader trade optimism stoked by last week’s phase-one trade deal between the U.S. and China. As equities rose, global yields have ticked higher with Treasurys up by 1 bp on average before this morning’s influx of U.S. economic data. After the 2.1% growth figure for the third quarter was confirmed in final revisions, the 2-year held steady at up 0.9 bps on the day at 1.64% while the 10-year yield maintained its 1.2-bp increase to 1.93%.
Bullard Backs Steady Rate Projections: In an interview with the WSJ published Thursday, St. Louis Fed President Bullard, an outspoken advocate for an earlier start to Fed easing, said his only real quibble with the Fed actions in recent years was the final rate hike a year ago. “I think the only thing I would fault in this process was the December 2018 hike, which I think was probably a step too far,” Bullard said. However, “We made a fairly big adjustment to policy during 2019. Now, we should wait and see what the effects are in 2020 and see how the data come in.” He added, “I penciled in no rate increases for 2020.” Echoing skepticism Dallas Fed President Kaplan displayed earlier in the week about an unexpected uptick in inflation, Bullard noted, “I’m not putting a lot of weight” on the likelihood of inflation moving significantly higher.
Existing Home Sales Cooled More Than Expected in November: Existing home sales fell more than expected in November and October’s gain was revised lower, softening an uptrend that unfolded in 2019 to push sales up from January’s three-year low. Total sales fell 1.7% last month to 5.35MM units, worse than the 0.4% decline expected, and October’s gain was revised down from 1.9% to 1.5%. Regionally, the monthly decline was driven by softer sales in the South and West regions as activity actually ticked up across the Northeast and Midwest. Price gains remained steady, despite the monthly decline in sales, as inventories fell even more quickly. Months supply dipped to 3.7 as total inventories plumbed a new low for any November since the NAR began keeping records.