Week in Review: November 25, 2022
November 28, 2022
Recap & Commentary
Markets ended the holiday-shortened week higher, buoyed by the release of the Federal Reserve’s November Federal Open Market Committee (FOMC) meeting minutes. Markets seemed particularly pleased with the statement that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” Beyond that passage, however, the minutes revealed a high degree of uncertainty among participants on how the Fed’s fight against inflation will ultimately unfold.
Reflecting those uncertainties, the minutes noted that risks to the committee’s inflation outlook were to the “upside” while risks to the committee’s economic outlook were to the “downside.” In addition, participants noted that “a period of below-trend real GDP growth would be helpful” in restoring the supply and demand balance and reducing inflationary pressures. The minutes also made multiple references to the lagged effect of the Fed’s policy actions on economic activity and how those lags complicate the assessment of the Fed’s actions.
For the week ahead, two items worth watching are the potential for a U.S. rail strike and anti-Covid protests in China. U.S. rail workers are currently threatening to walk off the job by December 9 if certain conditions are not met. A strike would snarl U.S. supply chains and place upward pressure on inflation. In China, protests against the country’s strict zero-Covid policies erupted in multiple cities. Whether the protests will result in a relaxation of policies or simply trigger a harsh crackdown on protesters remains to be seen.
Mixed messages would be the best way to describe the week’s economic data.
Headline durable goods orders jumped 1.0% in October, aided by strong aircraft orders. A more focused measure of core business spending rose 0.7% after falling 0.8% in September. The rise suggests businesses remain optimistic about overall levels of demand, despite ongoing concerns about economic slowing.
According to industry group S&P Global, U.S. manufacturing and services sector activity both contracted in October, dragged down by slowing demand.
Excluding the pandemic, new orders contracted at their fastest pace since 2009, reinforcing concerns that the economy could head toward a recession.
Illustrating the volatile nature of housing data, new home sales unexpectedly rose 7.5% in October, despite higher mortgage rates. The consensus forecast had been for a 3.0% decline. Compared to a year ago, sales were down 5.8%. Pricing remained strong, with the median price rising 15.4% Y/Y, to $493K.
Consumer sentiment fell in November, largely due to a deterioration in views of current conditions. Inflation expectations were mixed, with the one-year outlook falling 0.1% to 4.9%, while the five-year outlook rose 0.1% to 3.0%.
Weekly jobless claims rose 17K to 240K, their highest level since mid-August. The rise comes amid several large tech companies announcing mass layoffs and broader concerns about slowing economic activity. Despite the rise, the current level remains below the 300K+ typically associated with recessions.
China’s central bank cut the amount of cash banks must hold as reserves, freeing ~$70B to support the economy, which has been impacted by slowing global demand, a slumping real estate sector, and a recent spike in Covid cases.
|U.S. Bond Market||1.1%|
|10-Year Treas. Yield||3.69%|
|WTI Oil ($/bl)||$77|
The Week Ahead
- Nov. Employment Report
- ISM Manufacturing
- PCE Inflation
- Pending Home Sales
- Consumer Confidence
- Weekly Jobless Claims