Wednesday, November 26, 2014 -
THERE WILL BE NO UPDATES FOR THURSDAY OR FRIDAY OF THIS WEEK - WE HOPE YOU HAVE A SAFE AND HAPPY THANKSGIVING BREAK.
Today was another go nowhere day – until the final 45 minutes, when a buying ramp managed to push stocks into positive territory and eke out another new high for the Dow and S&P 500. Let’s call it a last minute turkey party stimulus from our friends at the Federal Reserve dealer banks.
Nonetheless, the late buying ramp helped all the indexes close in positive territory, although the Dow edged up only 13 points (+0.1%) to 17,828. The Nasdaq advanced 29 points (+0.6%) to 4,787 and the S&P 500 climbed 6 points (+0.3%) to 2,073. The NYSE finished at +0.17% and the small cap Russell 2000 at +0.36%.
The choppy trading repeated for the last several sessions came as traders digested a slew of released U.S. economic data, with some reports pushed forward by the Thanksgiving Day holiday on Thursday and the traditional emphasis on “Black Friday” holiday shopping.
Mixed bag of economic data
Though a number of economic reports filled today’s reading list, few of them made a difference to traders as a number of them that were negative were also balanced by several positive ones – none too shocking, though.
On the positive side, new home sales edged up by 0.7% in October, U.S. personal income and spending both rose by 0.2% in October, and U.S. durable goods order unexpectedly rebounded by 0.4% in October.
It wasn’t much, but new home sales rose from a 455,000 rate in September to a rate of 458,000 in October, an increase of 0.7%. Unfortunately, this level still remains 67% below the 2008 peak and a surprising 33% lower than the 35-year average. Housing is still in the gutter.
The Commerce Department also reported that personal income edged up by 0.2% along with personal spending. The negative to this positive is that economists had been expecting incomes to rise 0.4% and spending to rise 0.3%. Does that really make this a negative instead of a positive today? You decide.
In an odd synchronization, this same report from the Commerce Department revealed that core PCE prices, which exclude food and energy increases, also edged up by 0.2% in October. I could not find any report of how food or energy changed, though we clearly can see that energy is dropping and food is rising in dramatic contrast – though it is unclear how to evaluate these fluctuations against the core prices.
The surprise in today’s reports was that durable goods orders unexpectedly rebounded in October, bumping up 0.4% versus a 0.9% drop in September. But as has been typical for a number of years now, whenever we see the durable goods unexpectedly rise you only need to go look at transportation and government spending to see why.
The slight bump in durable goods orders was largely attributed to transportation order, which rose by 3.4% in October against a 3.3% drop in September – that is a spread of 6.7% and contributed greatly to the moderate improvement in the headline durable goods number.
And naturally, orders for defense aircraft / parts soared by 45.3% in October. Given such a dramatic surge, the negative for this durable goods report is that the orders reflecting the health of the economy, i.e., business spending for equipment, were dramatically in decline, falling by 1.3%. Without the transportation segment the headline durable goods orders fell 0.9%.
Bottom line, even the positive economic data today contained a lot of negatives. On the negative side, there was plenty to be disappointed in. Pending home sales fell 1.1% in October, weekly jobless claims jumped well over 300k, consumer confidence unexpectedly fell, and the Chicago business barometer fell much more than expected in November.
Economists had been expecting jobless claims to continue a downward trend to 286,000 so when the number jumped to 313,000 many were surprised. Perhaps a number of part-time workers just decided to take Thanksgiving holiday a little early to train up for that big meal they will get with their food stamps.
If this trend continues though, it will make painting a stronger recovery a bit more difficult, especially heading into the holiday season when employment typically rises instead of dropping off.
In contrast to the slight jump in new home sales, pending home sales unexpectedly fell in October, tumbling 1.1% versus expectations or a +0.6% rise. Lawrence Yun, NAR chief economist said, “Demand is holding steady but would be more robust if it weren’t for lagging wage growth and tight credit conditions that continue to hamper those individuals looking for relief from rising rents.”
The western states showed the greatest drop off in pending sales, falling a whopping 3.2% in just one month.
The Thomson Reuters / University of Michigan consumer sentiment report indicated that consumers continue to sour on their economic outlook, as it dropped in this mid-month reading to 88.8, below the initial reading of 89.4 to begin November and well below the previous month’s reading of 98.3.
The gauge of expectations for the future was even lower, down to 79.9 – as inflation expectations managed to dip a tiny bit, from 2.9 percent in October to 2.8% in the latest survey.
On the business scene, the metric of business activity in Chicago grew at a notably slower rate in November, according to the report released by MNI Indicators today. MNI said the Chicago barometer fell to 60.8 this month from a one-year high of 66.2 last month.
Although a reading above 50 indicates growth, the trend is slowing and expectations were that this month would see an increase to at least 63.2. Once again, a downward trend appears to be raising its head as we enter the holiday season – a bit unsettling.
Business Sentiment Collapses
Today I studied a Markit survey of over 6,000 firms – a type of business alternative to the consumer sentiment reports we get from the government and Thomson / Reuter’s / University of Michigan surveys of consumers.
The picture that Markit paints is horrible – a complete collapse in business confidence heading into the holiday season. The data for this survey was completed in late October, but was “EMBARGOED” until the 24th of November for some reason [perhaps the November mid-term elections?], I wonder.
The headline in their survey blares out “Global business confidence slumps to five-year survey low.” This business confidence survey began five years ago, so October’s data is the lowest on record for this new business sentiment survey. That is alarming.
Check out their chart:
If you think that a soaring stock market is evidence of business leaders confidently looking forward you are sadly mistaken. Our business leaders (over 6,000 companies) say otherwise, as optimism among businesses collapsed in October – the lowest level in over five years.
Hiring and investment plans were reportedly at or very near the post-crisis lows as future expectations of US business activity has dropped to the lowest seen since the 2008 financial crisis.
Inflation pressures are expected to ease even further – giving free reign to continued intervention from central banks to battle the more worrying deflation. No matter how hard the fiat printing continues, the global economies continue to battle deflation – a clear symptom of demand drop off and a coming recession.
According to the survey, US growth looks likely to have peaked over this summer with a slowing trend signaled for the coming months. Whatever you believe in the recently reported bump in GDP – think down, not up as our government would have you believe.
The Eurozone’s ongoing weakness in addition to the deflation battle being waged in Japan suggests to these businessmen that the spillover of likely contraction will include all global economies – even the U.S.
Obama / Ferguson Slip-Up?
Yesterday I presented the question of why the National Guard stayed away from the Ferguson riots after the grand jury announcement in the middle of the night. Today we hear Governor Nixon adamantly denounce that he was influenced by the Obama administration to stand down and hold back – and yet, he vigorously dispatched them the next morning and evening to successfully quell the potential disturbances.
After looking into this a bit further it appears the White House is trying to back up the governor’s claims by indicating they were in close contact all the time in order to provide support to the governor. But in so doing, did the administration inadvertently reveal their undue influence on the Ferguson developments and eventual riots?
While Missouri Governor Nixon adamantly denies that the White House pressured him to resist sending in the National Guard during the initial looting and massive arson, it is clear, however, that Nixon had been in close contact with President Obama’s senior advisor Valerie Jarrett as the chaotic situation unfolded. According to the White House, Jarrett spoke with Nixon the first night of the protests as well as the morning after.
Deputy Press Secretary Eric Schultz confirmed that Jarrett received “updates” from Nixon, “promising to stay in close touch” as the situation continued.
“Valerie spoke to Governor Nixon both last night and this morning, and has been briefing the President on an ongoing basis since last night,” Schultz said, speaking to reporters on Air Force One. “And in each of those conversations with Governor Nixon, Valerie has pledged to stay in close coordination with the Governor in making sure that he’s getting the support he needs from the federal government.”
Schultz refused to say whether or not President Obama spoke on the phone with anyone about the protests sweeping the nation, but revealed that White House staff spoke with mayors across the country to coordinate a proper response.
This smells fishy to me. We still don’t have an answer on why they allowed the announcement to be in the middle of the night and why the National Guard was nowhere to be seen while Ferguson was burning. I joked that the governor was on the phone with the White House as the “good TV” was being taped and broadcast to millions of Americans – it looks like I was right!
Following the holiday on Thursday, activity is likely to be subdued when trading resumes on Friday due to the abbreviated session and a lack of major U.S. economic data.
Have a great Thanksgiving holiday – our next update will be on Monday, December 1st.
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