On Tuesday of last week, the international trade data for November was released and it was encouraging. As you likely remember, October’s initial reading was a better than expected $-47.2 B. It was revised lower to $-46.9 B. Econoday consensus for November was $-43.9 B. Again, it was better than expected, coming in at $-43.1 B.
The EIA Petroleum Status Report for the week ending 1/3 reflected a reversal from the previous week’s inventory draws. All three verticals saw modest builds.
The most impactful economic release of the week came on Friday morning. The Employment Report was a bit disappointing. The previous report was revised lower by 10K from 266k to 256K and December’s report was well below both November’s gains and also December’s consensus. It was 145K in December. The unemployment rate remained 3.5%. Manufacturing payrolls contracted by 12K. Average hourly earnings on a M/M basis were a mere 0.1%.
The relative weakness in the December Employment Report bled into the markets – both equities but also treasuries. In the case of equities, only the most defensive sectors of the market held their ground on Friday.
Pfizer and Merck provided a lift to the health care sector while the dividend-rich utility space attracted those looking for relative stability and risk aversion. Real estate led the trade higher on Friday. Away from those three sectors, the market slumped. That weakness was spearheaded by financials as concern over a weaker than expected employment report may portend a weaker than expected economy in the quarters ahead. Industrials fell victim to selling pressure for much the same reason.
US equity markets remain in a confirmed uptrend.
Q4 earnings releases will begin to pick up this week. On Tuesday alone we’ll hear from J.P. Morgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C).
The final Consumer Price Index (CPI) reading of 2019, December, is released on Tuesday morning. The topline Econoday consensus is 0.3% – matching November’s 0.3% reading. On a Y/Y basis, however, the reading is expected to tick up to 2.3% in December from November’s 2.1%. This widely followed measure of inflation has remained well in check despite healthy employment gains and continued economic expansion as measured by GDP.
Another widely followed measure of inflation, the Producer Price Index – Final Demand (PPI-FD), is released the following day, Wednesday. November’s topline reading was flat on a M/M basis. Econoday consensus is 0.2% for December. As is the case with the CPI, the PPI-FD measured on a Y/Y basis is expected to tick higher. In this case, from 1.1% to 1.3%.
Also on Wednesday, the EIA Petroleum Status Report for the week ending 1/10 is released. Last week’s report reflected modest inventory builds across all three verticals. Crude oil inventories rose 1.2 M bbl. Gasoline inventories rose a more robust 9.1 M bbl. and distillate inventories rose 5.3 M bbl. Given recent runup in crude prices, last week’s inventory builds provided a counter-narrative that has helped keep crude prices contained – at least temporarily.
Thursday morning’s economic data-centric narrative will be dominated by weekly jobless claims, the Philly Fed, and retail sales – all of which independently can fuel a degree of volatility. In the case of the weekly jobless claims, it has become apparent in recent reports that any additional gains will be difficult to come by. Frankly, that should not be surprising given the fact that the economy is currently operating at a full-employment level. Last week’s report provided for claims that totaled 214 K. the Four-week moving average remains a very healthy 224.0 K. The Philadelphia Fed Business Outlook Survey for January is expected to reflect an uptick in manufacturing conditions from December’s 0.3 to 3.4. Retail sales for December M/M are expected to come in at 0.3%. Significantly, less autos, the M/M reading is expected to come in at 0.5%.
On Friday, we receive two economic releases of particular importance, housing starts, and industrial production. Housing starts for December are expected to reflect healthy demand. Econoday consensus is 1.373 M – up fractionally from November’s 1.365 M reading. The industrial production reading for December is released before the opening bell at 9:15 am. Econoday is calling for a M/M reading of 0.3% – down from November’s 1.1% reading. Manufacturing M/M is also expected to tick negative (-0.2% versus 1.1%). Capacity utilization should remain relatively unchanged.
Flickr photo: sottolestelle
Kenny’s Commentary subscribers receive the note in their inbox Monday’s before the US markets open plus economic calendar, media, charts, Mark Sutin’s Insights, Tortoise Advisors strategies, and Sam Stovall’s analysis Subscribe