The MorningSnapshot- 11/29

The MorningSnapshot
November 29, 2012
Fiscal Cliff Countdown: 32 days

Yesterday’s Wrap-Up
U.S. equities reversed morning declines and the S&P 500 closed up nearly +0.8% after Republican House Speaker John Boehner told reporters he is optimistic that budget talks can “avert this crisis sooner rather than later.”  10yr Treasury yields fell -0.85bps to 1.6284% as the Fed completed two purchases amid a $35B 5yr auction. Home builders in the U.S. sold fewer homes than forecast in Oct. and purchases for the prior month were revised down. According to the Fed’s Beige Book, the U.S. economy expanded at a “measured pace” in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of superstorm Sandy.
 

Morning Commentary
Details of today’s GDP revision are worse than the weaker-than-expected overall result with particular warnings signs coming from weak personal consumption which is unlikely to absorb the near doubling of the inventory growth estimate. Personal consumption growth was revised down to 1.4% QoQ from 1.9%, the lowest since 2Q 2011 and near the levels observed at the start of three prior recessions. Inventories rose $61.3B versus the initial estimate of $34.1B.

Despite the mostly poor economic data points out today, sentiment is modestly higher around the world. As of 9:50 EST, the S&P 500 is up +0.54% while the 10yr Treasury yield is down just slightly to 1.627%. The dollar is weakening versus most of its peers, with the euro up +0.355% versus the greenback. The Euro Stoxx 50 is up +1.17% on strong volume, led higher by Italian and Spanish equity rallies. Sovereign debt spreads to German bunds are contracting this morning, while the 10yr bund itself is up +1.5bps to 1.382%.

Today’s Economic Data Lineup (EST)
8:30am: GDP Q/q, 3Q revised est. 2.8% (prior 2.0%)
8:30am: Personal Consumption, 3Q est. 1.9% (prior 2.0%)
8:30am: GDP Price Index, 3Q est. 2.8% (prior 2.8%)
8:30am: Core PCE Q/q,  3Q est. 1.3% (prior 1.3%)
8:30am: Initial Jobless Claims, Nov. 24, est. 390k (prior 410k)
8:30am: Continuing Claims, Nov. 17, est. 3325k (prior 3.337k)
9:45am: Bloomberg Consumer Comfort, Nov. 25 (prior -33.9)
10:00am: Pending Home Sales M/m, Oct. est. 1.0% (prior 0.3%)
10:00am: Pending Home Sales Y/y, Oct., 8.9% (prior 8.5%)
11:00am: Kansas City Fed Manf., Nov., est. -1 (prior -4)
1:00pm: U.S. to sell $29b 7Y notes
2:00pm: Fed to purchase $4.25b-$5.25b notes due 2/15/21-11/15/22
North America

  • The U.S. economy expanded more than previously estimated in the 3Q as a narrower trade deficit and gains in inventory overshadowed a smaller gain in consumer spending. GDP grew at a +2.7% annualized rate, up from a 2% prior estimate; the median forecast of 82 economists called for a +2.8% gain. Household purchases climbed at a +1.4% rate, the least in more than a year and down from a previously reported 2% rate, and income gains were also cut.
  • Applications for jobless benefits in the U.S. decreased by -23K to 393K for the week ended Nov. 24 as the labor market disruptions wrought by hurricane Sandy ebbed. The drop in claims in an indication the job market in the mid-Atlantic region, which employs about 14% of U.S. workers, may be stabilizing after Sandy put some area residents out of work at the start of the month.
  • President of the Federal Reserve Bank of New York, William Dudley, says he is weighing “unacceptably high” joblessness as he considers whether the central bank should expand its asset purchases. “I will be assessing the employment and inflation outlook in order to determine whether we should continue Treasury purchases into 2013,” Dudley said today in the text of remarks for a speech in New York. “The Fed will promote maximum employment and price stability to the greatest extent our tools permit, and we will stay the course.” According to the minutes of the FOMC’s Oct. 23-24 gathering, a “number” of Fed officials said that asset purchases by the Fed may need to continue into 2013.

Europe

  • Unemployment in Germany climbed for an eighth straight month in Nov. as the debt crisis in Europe curbed company investment and economic growth. The number of unemployed increased a seasonally adjusted +5K to 2.94M, and the adjusted jobless rate held at 6.9%. Economists had forecast a gain of +16K.
  • Economic confidence in the euro-area rose unexpectedly in Nov. even as the single-currency bloc was mired in its second recession in four years and leaders worked to contain the debt crisis. An index of executive and consumer sentiment increased to 85.7 from a revised 84.3 in Oct., according to the European Commission. The median forecast of 33 economists called for no change from the initial Oct. reading of 84.5.

Asia

  • Japan’s retail sales fell in Oct. by the most in 11 months as consumers purchases fewer cars and TVs, adding more pressure on the government to stimulate the economy that may already be entering a recession. Sales fell -1.2% YoY after a +0.4% advance in Sept. Weakening consumer demand is dragging on growth in the world’s third-largest economy before its Dec. 16 elections.
  • Australian sales of newly built homes rose for the first time in four months in Oct., led by apartments, an indication that the central banks interest-rate reductions are luring buyers. Sales increased +3.4% to 5,362 from Sept.,  when they dropped -3.7%.

Technical Talk
The S&P 500 is sitting at important resistance levels, both a trend line and the 100 DMA; the 50 DMA could cross below the 100 DMA if we continue the intermediate downtrend.

SPX 11.29.12

SPX 11.29.12

“Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude.”
-Thomas Jefferson

____________________________
Taylor Anderson
Chief Strategist

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