Month: November 2015

Investors will be paying close attention to a wide range of economic reports and news from key officials this week. Fed Chair Janet Yellen will speak at the Economic Club in Washington on Wednesday and will testify before a joint committee on Capitol Hill on Thursday. Other Fed officials are also scheduled to speak throughout the next two weeks leading up to the Fed’s much anticipated December meeting. The futures market odds of a December rate hike stood at 78 percent coming into this week.

Several important economic data points affecting interest rate policy will also be released over the coming days. Things got off to a weak start on Monday when the Chicago PMI came in at 48.7 for November, below the 56.2 reading in October. A number over 50 signals manufacturing expansion, below signals contraction. The dip in the reading came as new orders fell to levels last seen in March. Pending homes sales in October rose 0.2 percent, which could improve the PMI with a delayed boost in manufacturing sales.

Tomorrow will bring the more important Markit and ISM PMIs for November, which unlike the Chicago PMI, covers the entire nation. Both numbers are expected to show expansion. PMIs for other nations, such as China, will also be a factor for markets.

On Friday, we will see the release of the last monthly unemployment report before the Federal Reserve meeting. The unemployment number, along with average hourly earnings, may have a significant impact on the Fed’s expected decision to raise short-term interest rates. Economists expect employers to have added 200,000 jobs in November. The unemployment rate is projected to remain unchanged at 5 percent, and average hourly earnings are expected to have increased 0.2 percent.

Other reports that can either support or chip away at the consensus opinion include the Federal Reserve Beige Book, which is expected to show an increase in economic growth. October’s trade deficit is projected to have fallen slightly, to $40.6 billion.

Key earnings announcements late in the week include Sears Holdings (SHLD) and new homebuilder Hovnanian Enterprises (HOV). Homebuilders have been on a winning streak the past couple of weeks and this earnings report will be an important data point for the sector in the short-term.

In overseas news, the International Monetary Fund is expected to announce on Monday that it will include the Chinese yuan in its basket of reserve currencies in 2016. The yuan will join a select group: the British pound, euro, yen and U.S. dollar. While a positive step forward for China, it will not be bullish for the currency. The yuan will not function as a reserve currency until China opens its capital account, making the addition to the SDR mainly symbolic for the next couple of years. Also, with the U.S. dollar rising to a new 52-week high and Chinese economic indicators yet to bottom, depreciation pressures are mounting.

The European Central Bank will hold a key meeting on Thursday. Traders anticipate monetary easing of some sort: another round of quantitative easing, lower interest rates or other monetary tools designed to stimulate the stagnant Eurozone economy. This move has been priced in by the markets and is a big reason why the U.S. Dollar Index made a new 52-week closing high on Friday of last week. The U.S. dollar could sell off if policymakers disappoint, and the euro could fall to a new 52-week low if they follow through. Odds are favoring the U.S. dollar bulls to start the week, but anything is possible given the amount of central bank activity this week.

Finally, on Friday OPEC will gather in Vienna as crude oil continues to face a prolonged slump in prices. Iranian production is set to hit the world market soon and several nations need prices to rise in order to protect their currencies or national budgets, including Saudi Arabia.

After scoring one of its best weeks of the year, the U.S. markets are now looking forward to a holiday-shortened week. The exchanges will be closed on Thanksgiving Day and will close at 1 P.M. on Friday. Global markets, however, will remain open.

As a result of the short week, economic reporting activity will be front-loaded over the next two days. This morning, it was reported that October existing home sales fell by 3.4 percent, though they are up 3.9 percent when compared to last year.  Home construction shares rallied last week along with retailers Home Depot (HD) and Lowe’s (LOW), who are both up over 1 percent through early trading this morning, despite the home sales report.

Revised third quarter GDP data will be reported on Tuesday and durable goods index report will be released on Wednesday. Also out on Wednesday: consumer spending, core inflation, personal income and new home sales for October. The durable goods report, which measures consumer’s willingness to purchase big-ticket items, will be key for the Fed. Economists are forecasting robust growth of 2.1 percent for the month.

The upcoming personal income and spending report contains the PCE deflator used by the Fed to measure inflation. An uptick in inflation will strengthen the case for the Fed to tighten at its meeting on December 15^th and16 ^th. The initial estimate of third quarter economic growth was lower than economists expected at 1.5 percent, but a substantial upward revision to 2.2 percent is expected.

The totality of these economic reports could push the Fed much closer to a rate hike, which the market has increasingly priced in. Traders see confidence from the Fed and New York Fed President Dudley said an increase in rates is as much about signaling confidence as it is about setting policy. Vice Chairman Fischer has also spoken in terms that are interpreted as signaling an increase.

In earnings news, well-known names reporting this week include Tyson Foods (TSN), Hewlett-Packard (HPQ), Dollar Tree (DLTR) and John Deere (DE).

Overseas, European Central Bank President Mario Draghi reiterated on Friday the central bank’s commitment to lifting inflation as soon as possible, which is a sign that action will be taken at the agency’s governing council meeting in early December. The euro slumped in overnight trading, but was back to Friday’s closing levels on Monday. The euro will be the most important factor for the U.S. Dollar Index. The index came within a few tenths of its 2015 high on the euro’s drop overnight.

The S&P 500 finished 3.3 percent higher last week and the Dow Jones Industrial Average climbed 3.6 percent, reversing similarly sized losses a week earlier. Stock investors have much to be thankful for in Thanksgiving week: over the past 20 years, the stock market has rallied an average of 1 percent. Going back to the late 19^th Century, the stock market has rallied 62 percent of the time in the Tuesday to Friday trading window, one of the best odds for any three-day period during the year.

While stocks have history on their side, commodities are still under pressure. Oil spiked on Monday following Saudi comments about doing whatever it takes to stabilize oil, but then quickly gave up the gains. Copper futures briefly fell below $2 a pound. Last year, oil prices crumbled over the Thanksgiving holiday, in part due to lower volumes over the holiday. Copper is behaving similarly to oil last year and commodities selling has been picking up in China. If there are any surprises this week, they are likely to come out of the commodities market.

The S&P 500 Index enjoyed its best weekly return of the year, rising 3.27 percent.  Along with Nike (NKE) shares jumping, investors welcomed good news from Wal-Mart (WMT), Salesforce.com (CRM), Home Depot (HD) and Lowe’s (LOW). Nike has been a silver bullet for the Dow Jones Industrial Average, helping that index outperform recently and rise 3.35 percent on the week.

On Thursday, the athletic apparel maker announced plans for a share buyback, a stock split and a dividend hike; investors rewarded the firm with an increase of more than 5 percent. The home improvement giants were bolstered by the robust housing sector and helped lift both home construction funds as well as retail funds. The NASDAQ and Russell 2000 were up 3.57 percent and 2.45 percent for the week, respectively. The US Dollar and 10-year treasuries rallied, but crude oil headed lower, falling below $40 per barrel level. Copper also broke to a new 5-year low.

The number of Americans filing for first-time unemployment benefits fell slightly last week. This data points to continued strength in the labor market as claims stayed below the 300,000 threshold for the 37th consecutive week. This trend supports the opinion that the Federal Reserve will raise the benchmark lending rate at its December meeting. This position was discussed in the minutes of the central bank’s October policy meeting that were released on Wednesday. The following day during a conference sponsored by the San Francisco Federal Reserve, Vice Chairman Stanley Fischer said that some major central banks would move away from their near-zero interest rate policies in the near future.

Although a sharp drop in multi-family construction led to an 11 percent decline in housing starts last month, another positive sign for the Fed was the Consumer Price Index, which rose 0.2 percent. It was the first headline increase since July. Core CPI was also up 0.2 percent. Both numbers are within the Fed’s target range for inflation. While the Empire Manufacturing Survey showed weakness, it was counterbalanced by the Philadelphia Fed Survey, which showed a slight expansion in November.

Speaking at a conference on Thursday, Peter Praet, the Chief Economist for the European Central Bank, indicated that the central bank would implement new policies within the next few weeks. This sent the euro lower versus the U.S. dollar. The Bank of Japan’s monetary easing policies remained the same despite reports that the world’s third largest economy has once again slipped into recession. As a result, investors sold the yen versus the U.S. dollar. iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) were up approximately 2.75 percent and 4.71 percent on the week.