Risk-Off Tone Greets Investors

Risk-Off Tone Greets Investors

• Treasuries are finding an early bid as weak economic results from China overnight point not only to the ongoing troubles in the second largest economy but also to a general slowing in the global economy.  Meanwhile, 2yr and 5yr Treasury auctions today will likely keep any rallies on a short leash. Presently, the 10yr Treasury is yielding 4.43%, up 8/32nds in price and the 2yr Treasury is yielding 4.92%, up 2/32^nd in price.

• The first order of business this week will be getting a feel for how well the consumer kicked off the holiday shopping season and the early returns are positive. Black Friday sales were reported to have been strong with a 2.5% YoY increase in credit card spending per MasterCard while E-commerce sales rose 8.5% but in-store sales were more pedestrian with sales up just 1% from last year. Today’s Cyber Monday sales will be scrutinized, and they are expected to be strong given the nice pop in E-Commerce sales from Black Friday.  Once again, it never seems to pay to bet against the US consumer.

• After a quiet holiday week as it pertains to economic releases, this week the pace picks up the with the latest PCE inflation data due on Thursday when the October Personal Income and Spending Report is released. Overall PCE is expected to increase just 0.1% MoM vs. 0.4% in September while the YoY rate slows to 3.1% vs. 3.4% in September. Core PCE is expected to increase 0.2% MoM vs. 0.3% in September with the YoY pace slowing to 3.5% vs. 3.7% the prior month. If expectations are met the YoY core rate will be the lowest since April 2021 and below the Fed’s year-end 3.7% forecast. Still, don’t expect Fed rhetoric to shift much after the report as we’re likely to hear inflation remains well above the 2% target; thus, the higher for longer theme is likely to continue.

• The spending component in the report is expected to see some slowing after the consumer stepped up strong in September. Sales are expected to slow from a 0.7% MoM gain to 0.2%. Of course, the numbers may be considered stale as we get more real-time spending data from early holiday sales.

• The ISM Manufacturing Survey for November is due on Friday, and it’s expected to remain in contractionary territory at 47.8 vs. 46.7 in October. The prices paid and employment sub-indices will get the customary look as investors search for additional clues on inflation and the labor market.

• Fed speak returns this week with six officials slated offer their views on policy with Chair Powell scheduled to appear on Friday. Also, the Fed’s Beige Book on the economy will be released Wednesday and that will form the basis of the Fed staff’s economic discussion for the December 13 FOMC meeting. There are rumors floating around that it will offer a weak view of the economy, but after the Fed staff had to walk back a recession call earlier this year they may be reluctant to cross that bridge again until there is more definitive slowing evident in the data.

Fed Funds Futures Expect Almost Four Rate Cuts in 2024