The Market Today
Tax Committee Set, Countdown to Spending/Debt Ceiling Expiration
by Craig Dismuke, Dudley Carter
Today’s Calendar – Quiet Economic Calendar Will Keep the Focus on Washington: In the early data jobless claims were better than expected on both an initial and continuing basis. Initial jobless claims totaled 236k for the week ended December 2, better than the 240k expected and a 2k claims decline from the week before. As a result, the 4-week average for initial claims fell from 242,250 to 241,500. Initial claims have been better for three consecutive weeks. After climbing 92k in the last two reports to the highest level since early September, continuing claims fell 52k to a three-week low of 1,908k. The claims data continue to provide a fast data point showing hiring and employment remain at healthy levels.
Thursday’s later data will provide an update on various aspects of U.S. consumers’ balance sheets. First, the Fed will release data showing the change in household net worth during the quarter before reporting how much new non-mortgage credit consumers took on in October. Net worth is likely to be up again thanks to the continued record-setting run for stocks and the persistent price appreciation in real estate assets; the two largest categories of appreciable assets held by consumers. Consumer credit is expected to have expanded at a slightly slower pace in October.
Overnight Activity – Treasury Yields Essentially Flat from Wednesday in a Quiet Overnight Session: Developed nations’ sovereign yields inched up overnight and yields on the European periphery ticked lower. For Treasurys, this had meant moves higher of less than 1 bps across the entire term structure from the 2-year yield out. However, Treasury yields fell in early U.S. trading with the 2-year yield down 0.4 bps and the 10-year 1.4 bps lower. After a mixed start in Asia, European equities rose initially but reversed into negative territory and near the lows of the day. The mixed performance has resulted in uneven trade overnight in U.S. futures which are signaling a bit of uncertainty ahead of the U.S. session. The Dollar is up for a fourth day and at its best level since November 21. Oil prices have recovered overnight after big declines yesterday (more below). With a relatively quiet economic calendar today, markets will likely continue to look to Washington for direction. The members of the conference committee, that will try and reconcile the two tax plans, have been announced with hopes to have a final bill to the President by year’s end. More immediate attention will be payed to negotiations around a spending bill and the debt ceiling, both which expire Friday. A group of congressional leaders from both sides of the aisle is set to visit the President today to discuss extending spending authority. Reports indicate this could precede a potential vote in the House today on a temporary extension.
Yesterday’s Trading Activity – Equities Diverged as Oil Prices Dipped and Treasury Yields Moved Modestly Lower: Equity investors remained unconvinced Wednesday as to what to make of the recent trading patterns as the Dow dropped, the S&P held essentially unchanged, and the Nasdaq moved up 0.21%. Information technology companies were the top performer in Wednesday’s trading, offsetting losses in other sectors for a second day, and was followed closely by more defensive sectors such as consumer staples, utilities, and real estate companies. Energy companies closed at the bottom after crude prices moved nearly 3% to the downside to extend a string of volatile trading days; U.S. crude prices have moved at least 1% in five of the last eight sessions. The EIA’s weekly petroleum report showed a drawdown in U.S. crude inventories of more than twice expectations and the largest since mid-October. However, inventories of gasoline grew by nearly triple expectations and by the most since January. On top of that, U.S. weekly production rose to a new all-time high. In the Treasury markets, yields moved lower Wednesday but bounced off of their intraday bottoms coincided with the low points for stocks. The 2-year and 10-year yields both drifted down 1.2 bps to 1.82% and 2.35%, respectively.