The Market Today

TODAY’S CALENDAR

Volatile Goods Trade Data Takes Some Steam from 4Q GDP Outlook: The Advance Goods Trade data for November showed a much larger-than-expected increase in the monthly trade deficit, erasing the positive momentum from the October report.  October’s trade data showed a sharp decline in the deficit, down $13.8b, pointing to trade being a positive addition to the 4Q GDP tally. However, the goods trade deficit erased all of that decline, increasing $14.6b in November and bringing the monthly goods deficit to a record-high $97.8 billion.  Imports increased $11.3b (4.7%) while exports declined $3.3b (2.1%). Driving the increase in imports was, more than anything else, a $5.7b increase in industrial supplies.  This comes after October’s deficit declined on a $6.4b increase in the export of industrial supplies.

Inventories Continue Recovery: Retail inventories jumped 2.0% MoM in November, the largest monthly gain on record.  However, retail inventories remain 6.2% below their pre-pandemic level. Wholesale inventories also posted strong results, up another 1.2% MoM.

Pending Home Sales: At 9:00 a.m. CT, the November Pending Home Sales report is expected to show a 0.8% gain in homes going under contract for purchase.

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OTHER ECONOMIC NEWS

Richmond Fed Index Notches Unexpected Gain in December: The Richmond Fed’s Manufacturing Index rose unexpectedly in December to its strongest level since July. The details of the report were mixed, with shipments and new orders improving from November while employment pulled back from the second strongest level on record. Metrics monitoring possible bottlenecks were also mixed. Supplier delivery times tumbled to the lowest level of the year. However, orders backlogs rose, raw materials inventories fell to the second lowest level on record, and prices paid hit a new all-time high. The forward-looking indicators were positive, reflecting expectations for improvement in activity and employment and less strain on supply.

TRADING ACTVITY

S&P 500 Fell from a Record and Treasury Yields Hovered During Tranquil Tuesday Trading: The Dow rose 0.3% Tuesday marking a fifth consecutive daily gain while the S&P 500 edged away from a record and the Nasdaq fell 0.6% on tech weakness. The S&P 500 slipped 0.1% on the day as losses for the heavily weighted tech sector, health care, and energy offset gains for most other industry groups. Stuck between two holidays, trading volumes this week are anticipated to be light. Tuesday’s volumes on the S&P 500 were more than 40% below the prior 30-day average. With equities treading water and the economic calendar void of market-moving reports, Treasury yields barely budged. While the 30-year Treasury yield rose 2.1 bps, yields ten years and in closed within 1 bp of where they opened Tuesday.

Longer Yields Rise as Equities Search for Direction: Another uneventful news cycle overnight has led to mixed market results so far in Wednesday’s global session. Asian markets closed mixed but mostly lower amid continued weakness for tech. Europe’s Stoxx 600 jumped to a new record high early in the session before falling back to near even around 7 a.m. CT. U.S. equity index futures were within 0.1% of where they opened. Despite new record daily infections for many countries this week, markets have taken solace in the growing body of evidence showing the Omicron variant may produce mild symptoms. Just prior to the release of this morning’s economic updates on trade and inventories, longer Treasury yields had moved higher. The 2-year yield was 0.4 bps lower while the 5-year yield had risen 1.1 bps to 1.27% and the 10-year yield had added 3.6 bps to 1.52%. The 10-year Treasury yield’s increase trailed gains in the U.K. and Italy but was larger than moves across most of Europe. Treasury will auction $56b in 7-year notes at 12 p.m. CT.