Thanksgiving Week Arrives

• The Fed looks to be settling into the holiday shortened week early as no speakers are on the calendar, although some impromptu appearances are always possible. In addition, next week begins the Fed’s quiet period before the December 10^th FOMC rate decision, so the market will be contending with limited data, and limited to no Fed speak, so expect the trading action in equities, and any geo-political events, to be the main driver of yields. Currently, the 10yr Treasury is yielding 4.06%, unchanged on the day, while the 2yr note yields 3.53%, up 2bps in early trading.

• The holiday shortened week, along with delayed reports leaves, tomorrow’s September Retail Sales Report as the highlight on the data front. Much like the September payrolls report, retail sales, while stale, will still provide a look at the health of the economy prior to the government shutdown. Thus, another asymmetrical response can be expected. That is, if the report reveals solid spending, it will be shrugged off as old news. However, if it indicates any weakness that will play up the thinking that spending and consumption likely dipped further during the government shutdown in October. We’ve long commented that trying to call the demise of the American consumer is a foolhardy venture, so we’ll stand by that position and expect to see a solid level of retail spending in September, prior to the shutdown.

• The other bit of new information will be Wednesday with the release of the Fed’s latest Beige Book. Typically, the Beige Book is not a market moving event, and we don’t expect it to be this week other than the economic anecdotes from the 12 Fed regions will provide some missing puzzle pieces for FOMC voters. Recall the October report noted most districts reporting more employers lowering head counts through layoffs and attrition in light of weaker demand, elevated economic uncertainty, and, in some cases, increased investment in AI technologies. Helping the hawkish argument was a mention that prices rose during the reporting period. How those two elements are described in Wednesday’s report will no doubt have some impact on FOMC voters.

• From late Friday morning, the headline S&P Global US PMI® Composite Output Index rose for a second successive month in November, up from 54.6 in October to 54.8, according to the ‘flash’ reading (based on about 85% of usual survey responses). The latest reading is the highest since July, signaling an acceleration of growth over the fourth quarter so far. The service sector (55.0 vs. 54.8 in Oct.) continued to lead the upturn, reporting its strongest output gain since July and the largest rise in new business so far this year. That service sector growth was accompanied by continued positive output in manufacturing production, albeit at a slower pace (51.9 vs. 52.5 in Oct.). Part of the slight dip from October was a marked slowdown in new order gains, in part reflective of a fifth straight month of falling export orders, and that poses downside risks to production in December.

• Manufacturers took on more staff at the fastest rate for three months, but service sector job creation was only modest and slower than in October. However, input cost inflation accelerated sharply in November, hitting the fastest rate for three years, except for a tariff-induced pop in May. Tariffs were again the predominant reason cited by companies for increased costs, alongside reports of higher wage rates. Service sector costs rose at the fastest rate since January 2023. In contrast, manufacturing input price inflation cooled to the lowest since February but remained well above the average seen over the past three years.

• While higher input cost inflation fed through to a steeper rise in average prices charged for goods and services in November, competitive pressures restrained pricing power and meant selling price inflation remained below recent peaks. Overall, the increase in prices charged was the second lowest since April but with diverging trends. Selling price inflation slowed in manufacturing but increased in services.

Futures Odds Continue to Climb for December Rate Cut

Source: CME Group

S&P Global Flash PMI’s for November Show Continued Expansion but Price Pressures Continue