Succinct Summation of Week’s Events:

Positives:

1) The Fed’s recent emphasis on forward guidance seems to be working as the 2 yr note auction was good with the bid to cover at the best level since April. It’s the long end of the curve now that is doing the tightening for the Fed;

2) Building permits in October jump to 1.034mm, well above expectations of 930k BUT almost all of the gain was seen in the multi family category which rose to the most since June ’08;

3) Home prices as measured by S&P/Case-Shiller rose 1% m/o/m and 13.3% y/o/y in September as all 20 cities surveyed saw gains. With higher rates and prices, expect the strong pace of gains to moderate in months to come;

4) Off the lowest level in 7 weeks, Initial Jobless Claims fell a further 10k to 316k bringing the 4 week average to 332k from 339k, the lowest since early October;

5) After a government shutdown depressed manufacturing figure in October, the Richmond region bounces back by 12 pts to +13 in November. Chicago PMI fell by 2.9 pts to 63 but that was better than the forecast of 60;

6) The final November UoM confidence figure rose to 75.1 from 73.2 in October and was above the preliminary print of 72 a few weeks ago. All of the gain however from October was in the Outlook component which was higher by 4.3 pts while Current Conditions actually fell 1.9 pts to the lowest since January;

7) Spain’s economy officially expands in Q3 by .1% q/o/q, after 9 straight quarters of contraction; (S&P revises Spain’s credit outlook to stable from negative citing)

8) Economic confidence in the EU in November rose to 98.5 from 97.7 and .5 pt above the estimate. It’s the best since August ’11; The EU unemployment rate in October ticks lower by .1 to 12.1% off record high of 12.2% in September; November CPI rises .9% y/o/y and 1% core vs expectations of up .8% and .9% respectively. Services inflation gains 1.5%;

9) Towards the Abe goal of inflation in Japan, CPI in October rises 1.1% y/o/y, unchanged with September but matching the fastest pace in 5 years. CPI ex food and energy gains .3% y/o/y, the highest level since August 1998 led by a sharp increase in electricity costs. Higher wages can’t come soon enough for the populace;10) The Japanese jobs to applicant ratio rises to .98 from .95, above the estimate of .96 and the highest since December ’07; Japan’s manufacturing PMI in November rose to 55.1 from 54.2, the strongest figure since July ’06;

Negatives:

1) October Durable Goods orders continue sluggish trend as the core rate of spending (non defense capital goods ex aircraft) falls 1.2% m/o/m vs the estimate of up .8% after a drop of 1.4% in September;

2) In a month where the average 30 yr mortgage rate was 4.25% according to Bankrate.com, down from 4.47% in September (drop due to mid September no taper meeting), October Pending Home Sales still fell for a 5th straight month to the lowest of the year but the government shutdown was an influence. The NAR specifically said that “17% of realtors reported delays in October, mostly from waiting for IRS income verification for mortgage approval.”

3) After rising 5.8% last week to its lowest level of the year, mortgage applications to buy a home fell .2% w/o/w while refi’s rose just .1% after the prior 3 weeks of declines which took it to an 8 week low. The average 30 yr mortgage rate ticked up 2 bps to 4.48%, an 8 week high as interest rates remain sticky at current levels;

4) Conference Board’s measure of Consumer Confidence in November fell 2 pts to 70.4 which was below the estimate of 72.6, the lowest since April and compares with 80.2 in September. Both the Present Situation and Expectations components were lower. The answers to the labor market questions were a touch better but spending intentions on homes, cars and major appliances over the next 6 months all declined;

5) The Dallas regional manufacturing PMI falls to the lowest since May, following declines m/o/m in NY, Philly and Chicago. Monday’s ISM is expected to fall modestly to 55 from 56.4;

6) Margin debt rises to another record high in October and is about 2.4% of GDP vs 2.6% in July ’07 and 2.8% in March ’00. In the weekly II investor sentiment poll, bears fall to the lowest level since 1987. These are not timing tools but important perspective.

7) German unemployment in November rose by a net 10k people vs the forecast of no change m/o/m. It’s up for a 4th straight month. German and French retail sales in October both unexpectedly fall m/o/m for the 4th month in the past 5

Category: Markets

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