Singin' in the rain: Thursday's data roundup

Key points:
  • DJI off ~1%, S&P 500 dips, Nasdaq edges up
  • Financials lead S&P sector losses; comm svcs leads gainers
  • Euro STOXX 600 index up ~0.8%
  • Dollar, bitcoin down; gold, crude rally
  • U.S. 10-Year Treasury yield falls to ~3.58%


"They're coming in too fast," is what Luke Skywalker said when Imperial TIE fighters started zooming at him left and right, a sentiment that could be shared by market participants forced to weave and duck as they're bombarded by economic indicators.

There were few surprises, and many downbeat readings seemed to support Fed Chairman Jerome Powell's hints dropped on Wednesday that smaller hikes to the Fed funds target rate are likely in the cards.

First order, is the Commerce Department's epic personal consumption expenditures (PCE) report for October, which covers income, spending and inflation in one fell swoop, most of which had showed the good taste of falling in lockstep with consensus.

Personal income (USGPY=ECI) provided the closest thing to a surprise, gaining 0.7%, an acceleration from 0.4% the month prior. Analysts expected a repeat.

Consumer spending (USGPCS=ECI), which is responsible for about 70% of the U.S. economy, accelerated by 0.2 percentage points to a robust 0.8%, a forecast bull's eye.

Taken together, the saving rate (or, savings as a percentage of disposable income), slipped to 2.3%, the lowest number in more than 17 years.

While a low saving rate is often seen as an indicator of consumer optimism, this time around it suggests consumers are increasingly spending more money than they're taking in.

"People are still running down their accumulated pandemic savings," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The renewed drop in gasoline prices since early October will boost real disposable incomes just in time for the holidays, but people will need still to draw further on their stock of savings in order to maintain the recent rate of growth of spending."

But as Powell & Co's preferred inflation yardstick, the PCE price index (USPCE=ECI) had top billing.

Year-over-year, the topline number cooled to 6.0% from 6.3% in September, while the "core" reading - which strips away volatile food and energy prices - shed an encouraging 0.2 ppts to 5%, inline with economist predictions.

"Inflation is a downward trend and this plays into the hands of the Fed," says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "It supports what Fed chief Powell said yesterday, that we’ll be seeing slower (interest rate) hikes in December and less aggressive hikes in the new year."

Below, core PCE price growth is stacked against other major indicators, all of which appear to have finally passed the peak but have miles to go before approaching the Fed's average annual 2% inflation target.

The number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) decreased a bit more than expected last week, dropping 6.6% to 225,000.

While shorter lines at the unemployment office are generally regarded as a good thing, in the new normal of a hawkish Fed, it appears to suggest the central bank's relentless barrage of rate has yet to loosen the labor market's tight grip.

But ongoing claims (USJOBN=ECI), reported on a one-week lag, blew past analyst estimates by jumping to 1.608 million, zeroing in on the pre-pandemic 1.7 million level.

This is a notion supported by executive outplacement firm Challenger, Gray & Christmas (CGC), whose monthly tally of layoffs announced by U.S. firms (USCHAL=ECI) more than doubled last month, surging to 76,835, the highest monthly tally since January 2021 and a 417% increase over the same month last year.

The tech sector has felt the brunt of the pain, hemorrhaging 52,771 jobs last month and 80,978 so far this year, the highest number in the series' history.

Elsewhere, "while other industries are cutting jobs at a slower pace, hiring appears to have slowed as well," writes Andrew Challenger, senior vice president at CGC.

With one month left in the year, tech is followed by automotive and healthcare as the hardest-hit sector.

Next, U.S. slipped into contraction territory in November.

The Institute for Supply Management's (ISM) purchasing managers' index (PMI) slipped 1.2 points to 49, a tad steeper than market participants were expecting and its lowest reading since May 2020.

A PMI number below 50 signifies monthly contraction.

Deteriorating new orders, shrinking employment, and backlog are among the culprits. But the "prices paid" element - which tends to wind its way into consumer prices - also steepened its monthly plunge, dropping to an even 43.

A PMI reading below 41 is typically associated with broader economic recession.

"The U.S. manufacturing sector dipped into contraction, with the Manufacturing PMI at its lowest level since the coronavirus pandemic recovery began," writes Timothy Fiore, chair of ISM's manufacturing business survey.

Remarks from the survey's respondents appear to reflect a general acknowledgement of economic slowdown.

Anxious-sounding phrases like "Consumer demand is softening," "economic uncertainty has created a slowdown in orders," "supply chain issues persist," and "overall, things are worsening," are littered throughout their commentary.

Here's a breakdown of select PMI elements:

S&P Global, formerly known as Markit, also unveiled its final take on November PMI, which landed at a slightly more dire 47.7.

"While supply chain worries persist, notably in relation to China's lockdowns, companies' concerns are increasingly moving away from the supply side to focusing on the darkening outlook for demand," says Chris Williamson, chief business economist at S&P Global. "The business mood remains among the gloomiest seen over the past decade."

The dueling PMIs differ in the weight they apply to various components (new orders, employment, etc).

The graphic below demonstrates the extent to which the indexes agree - or not:

, a 0.5% drop in private sector construction spending - weighed down by falling investment in residential projects amid the ongoing housing market slowdown - handily outweighed a 0.6% jump in expenditures on public projects.

"The data are consistent with our forecast for another decline in residential investment in Q4 and for business investment in structures to decline as a recession approaches," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "Public construction should get some support from spending authorized by the infrastructure legislation passed last year, which has been coming on line gradually."

The Labor Department will provide the grand finale on Friday morning with its hotly anticipated November employment report, which is expected to show a gain of 200,000 jobs, with the unemployment rate holding firm at 3.7%.

A lower payrolls number or a higher unemployment percentage could very well boost expectations that the Fed could begin tapping the breaks with respect to its interest rate increases.

Wall Street is mixed in late morning trade with the main indexes flat to down, trying to finding footing after yesterday's post-Powell buying frenzy.

(Stephen Culp)



Major U.S. stock indexes are lower in early trading Thursday, with the Dow DJI down more than 1%, as investors looked over a host of economic data, including a report showing U.S. consumer spending increased solidly in October.

A separate report showed U.S. manufacturing activity contracted for the first time in 2-1/2 years in November.

Financials SPF are leading declines among major S&P 500 SPX sectors, while energy SPN and utilities S5UTIL are in positive territory.

The declines follow a rally in stocks Wednesday, when investors cheered remarks by Federal Reserve Chair Jerome Powell. Powell said during a speech that slowing the pace of the U.S. central bank's interest rate hikes is a good way to reduce the risk the Fed will overtighten policy as it fights too-high inflation.

Here is the early market snapshot:

(Caroline Valetkevitch)



Thomson Reuters

Indeed, after a 397-trading day run of closes above its 200-DMA, the SPX ended below this moving average on Jan. 21, 2022.

Five stints back above it from later that month to early April lasted as long as nine trading days (tds) and as short as one trading day (average 4.4).

A dip back to the moving average on Feb. 4 did hold temporarily. However, the subsequent bounce failed to make a new reaction high, and the SPX then collapsed again.

Wednesday's close back above the 200-DMA was the first since April 7, or 163 tds. This, after the moving average proved to be near-perfect resistance in mid-August.

Of note, in the wake of a 58-trading day run of closes below the 200-DMA with the early-2020 pandemic crash, once reclaimed, the SPX only saw two one-day closing violations of the moving average, with both by only about 0.4%, as a major bull-run was unfolding.

The moving average ended Wednesday at 4,050.30, and will likely dip to around 4,048.50 on Thursday.

Thus, ideally, on any pullback to now test the 200-DMA as support, traders will want to see short-lived and minor violations at most, prior to a snap to new reaction highs.

That said, there are more hurdles not far above Wednesday's 4,080.11 close, which was also the high of the day.

For the start, the resistance line from the January high now comes in around 4,103 on Thursday. It is falling around 3 points per-session. It also played its part in capping summer strength.

The Sept. 12 high was at 4,119.28 and the 76.4%/78.6% Fibonacci retracement zone of the August-October down-leg is in the 4,128-4,147 area.

The 100-DMA, which ended Wednesday at 3,921, has recently been showing its mettle as support. It contained weakness in mid and late November.

(Terence Gabriel)


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