The Market Today

TODAY’S CALENDAR

Drop in Gasoline Prices Frees Consumers to Blow Out Holiday Shopping: November’s retail sales data, combined with October’s positive revisions, confirm strong consumption this holiday shopping season.  October’s sales, excluding autos, gas, and building materials, were revised up from +0.3% MoM to +0.7%, coinciding with recent data showing the largest increase in revolving credit balances in 11 months.  Adding to the strength, November’s tally blew out expectations rising 0.9% MoM.  Combined, the consumers spent almost a full percent more over the two-month period than economists expected.  Digging into the November details, headline sales were modest, rising just 0.2%.  However, that was negatively affected by a 2.3% decrease in gasoline station sales, freeing up more disposable income for consumers to pour into other categories.  Auto sales were up a modest 0.2% and building material sales slowed 0.3% from a huger October report.  Consumers not only pulled by on construction supplies, but they also refrained from eating out at restaurants and purchasing clothing in November. But apart from those categories, every other category showed strength relative to the 12-month averages.  Online sales were the big winner, with purchases up 2.3% MoM. The October and November data point to another solid quarter for personal consumption, one of the final big-picture reports the Fed will receive prior to next Wednesday’s policy decision.

 

Industrial Production and Economists’ Forecasts: At 8:15 a.m. CT, the November industrial production data is expected to show another 0.3% MoM increase in manufacturing output.  At 8:45 a.m., the December Bloomberg Survey of Economists will show how economists adjusted their interest rate forecasts on the heels of recent volatility in rates.

 

TRADING ACTIVITY

Yesterday – Markets Ended Mixed as Trade Uncertainty Continued: While there were some positive developments on U.S.-China trade Thursday, including China’s Ministry of Commerce confirming the countries have been in close contact and agree on issues such as agriculture and autos, U.S. markets traded mixed with the major indices and different points along the U.S. Treasury curve pointing in different directions. Stocks again faded an opening jump and the S&P 500 spent the better half of the session moving sideways in negative territory. A late afternoon recovery, however, cut the index’s roughly 0.5% loss to nil by the close. Looking deeper, six of the 11 sectors rose with bond proxies beating out others for the top spots. Materials clearly underperformed the rest of the field at down 1.1% while financials were the second worst performer on Thursday. Those two cyclically-sensitive sectors have also become the two worst performers of 2018 as uncertainty about the economic outlook has grown at -14.9% and -12.7%, respectively. Yields fell and rose with stocks and the curve steepened for a second day between 2s and 10s to 15.1 bps, the most premium in nine days.

 

Overnight – The Latest Signs of a Global Slowdown Weigh on Stocks to End the Week: Just as markets were becoming optimistic that the U.S. and China could work through their trade troubles, a round of softer-than-expected foreign economic data shifted focus back to concerns of slower global growth. Stocks in Asia tumbled Friday to turn negative for the week with indices in China among the day’s biggest decliners. China’s CSI 300 fell 1.7% after November’s retail sales and industrial production both fell short of estimates. The 5.4% YoY increase in industrial production matched the weakest pace since 2002 while the 8.1% increase in retail sales was the slowest since 2003. Adding to concerns, while a popular and important sentiment survey showed 4Q activity remained steady, the three-month outlook of large Japanese manufacturers hit is weakest level since 1Q 2017. In Europe, preliminary December PMIs also disappointed. France’s composite PMI dropped 5 points, the biggest decline since 2011, to 49.3, the first contractionary result since early 2016. The country’s economic activity has been impacted by the disruptive Yellow Vest protests that have caught the government’s attention in recent weeks. German PMIs were also weaker-than-expected with the composite PMI (52.2) down to its lowest level since 2014 and manufacturing orders contracting for a third month. As a result, the aggregate Eurozone PMI fell to 51.3, its worst level since November 2014. U.S. equity futures and Treasury yields have tracked global markets lower. Contracts on the S&P 500 were down roughly 0.9% and the entire curve has moved lower by 3 bps to 4bps leading up to this morning’s retail sales report. Those yield declines were trimmed modestly following the stellar retail sales data.

 

WSJ – Las Vegas Housing Weakness Signals the Slowdown Is Spreading: “The national housing slowdown is spreading to markets like Las Vegas and Phoenix, where prices still haven’t reclaimed their pre-crisis peaks. After home values rose sharply this year, the market has shifted in recent weeks. Prices fell slightly in November while the inventory of unsold homes in the Las Vegas region has roughly doubled compared with a year earlier, according to the Greater Las Vegas Association of Realtors. Existing home sales slowed nearly 12% in November compared with a year earlier. … Now these cities are looking less like an exception and more like leaders of a broader national slowdown that is spreading to less expensive markets—Tampa, Philadelphia, Phoenix and Las Vegas—that haven’t fully recovered from the prior crash. The recent weakness in these markets is driven less by lack of affordability, as it has been in places like Seattle and Denver, but rather by a sense of panic among buyers and sellers for whom the memory of the last crash is still fresh, real-estate brokers and housing analysts say. … Chris Bishop, president of the Greater Las Vegas Association of Realtors, said he expects the number of homes for sale in the region to continue growing. He views this as a normalization of the market, rather than an echo of the prior crash. Currently there are about 7,000 homes on the market, whereas during the last crash inventory swelled to more than 20,000 homes. ‘We saw the job market tanking and people buying brand-new houses. That doesn’t even make sense,’ he said. ‘We don’t see that anymore.’ Indeed, there are few signs that homeowners are stretched too thin. The share of mortgages in the Las Vegas area that are 30 days or more delinquent was just 3.9% in September compared to nearly 25% at the bottom of the last housing crash, according to CoreLogic Inc.”