A Busy Economic Calendar
Financial Review by Sinclair Noe for 11-30-2015
DOW – 78 = 17,719
SPX – 9 = 2080
NAS – 18 = 5108
10 YR YLD – .01 = 2.22%
OIL + .02 = 41.73
GOLD + 7.90 = 1065.50
SILV – .01 = 14.16
For the month, the Dow was up 0.3%, S&P 500 gained 0.1% and the Nasdaq gained 1.1%. The yuan rallied after the IMF said it will be added to its basket of reserve currencies. The euro capped its worst month versus the dollar since March. The yield gap between German and American bonds widened to the most in nine years, while emerging-market stocks posted their biggest monthly slump since August.
This week’s economic calendar is packed. Today the National Association of Realtors reported pending home sales rose 0.2% in October and its index of contract signings is up 3.9% compared to a year ago. NAR’s chief economist, Lawrence Yun, said supply isn’t keeping up with strong demand. You know the old supply-demand formula, and tight supply points to higher prices.
Data due tomorrow includes US auto sales, ISM Manufacturing, PMI manufacturing, and construction spending. Look for auto sales to come in at an annualized rate of 18.0 million units, with a particular emphasis on VW sales following the emissions cheating scandal. The Markit PMI is expected to drop slightly from 54.1 in October to about 52.5 in November. The ISM manufacturing survey was 50.1 in October and it is expected to remain above 50, indicating expansion in manufacturing; maybe a minor improvement to around 50.5. Construction spending is expected to post a gain, but one of the smallest gains of the year.
On Wednesday, the Fed publishes their Beige Book, a collection of economic anecdotes from the Fed districts; we’ll look for the overall tone of the report rather than specific data. ADP will issue its survey on private employment in November, which serves as a first guesstimate for the Friday jobs report. Fed Chair Janet Yellen speaks at the Economic Club of Washington on Wednesday and then testifies before the Joint Economic Committee on Thursday. Chicago Fed President Charles Evans and San Francisco Fed president John Williams also speak this week.
On Thursday, European Central Bank policymakers meet and they are widely expected to add more stimulus to the Eurozone economy by either extending their quantitative easing program, or cutting the deposit rate, or both, or maybe something new. Earlier this month ECB president Mario Draghi said the central bank would “do what we must to raise inflation as quickly as possible”. Thursday also brings data on initial jobless claims, which have been running at a very solid 260,000. Also, reports from Markit and ISM on the service sector, which has been outperforming manufacturing; the ISM non-manufacturing report came in at 59.1 in October; it could cool off and still be considered strong. Toss in a report of factory orders.
OPEC meets in Vienna on Friday. A year ago, the Organization of the Petroleum Exporting Countries surprised markets with a Saudi-led strategy of keeping oil output high to win market share and squeeze presumably weaker rivals in the US and elsewhere out of the market. But with those rivals proving resilient and prices falling to new lows, members including Iran have decided the effort was a failure and are preparing to press Saudi Arabia directly to pull back on production at the group’s meeting this week. It is still unclear whether the Saudis will relent and cut production. Poorer members of OPEC such as Nigeria and Venezuela will continue to call for cuts in OPEC’s production target of 30 million barrels a day but not the affluent producers led by Saudi Arabia, which still produce at high levels despite low prices.
Also on Friday, we have the November jobs report which is expected to show the economy added about 200,000 jobs for the month, down from 271,000 in October. The unemployment rate is expected to hold steady at 5%, and wage growth is estimated at 2.3%. This is the last jobs report before the December 16th FOMC policy meeting, and a really, really ugly report might torpedo a rate hike but anything close to or above estimates would lock in an increase.
Leaders from nearly 150 countries have gathered in Paris to try to craft a new global agreement on climate change. The United Nations climate change conference will last two weeks and aims to steer the global economy away from its dependence on fossil fuels. One threat to reaching a binding climate accord may be a loose coalition of developing nations, led by India, who argue that they should not be asked to limit their economic growth as a way of fixing a problem that was largely created by the others. In a New York Times-CBS News survey, 63% of Americans said they would support domestic policy limiting carbon emissions from power plants.
The leaders of six countries and the World Bank have called on economies across the globe to put a price on carbon dioxide emissions to fight global warming. The heads of France, Germany, Chile, Mexico, Ethiopia and Canada all called for some kind of mechanism that essentially charges a price for each ton of carbon dioxide spewed by industry. It could be a simple tax or a more complex carbon credit trading system.
Pope Francis has warned climate change negotiators meeting in Paris that “it’s now or never” to come up with an agreement to limit global warming. Speaking to reporters en route home from Africa, Francis said the world is “at the limit of suicide” if it doesn’t reverse course and move away from its fossil fuel-based economy.
The International Monetary Fund has granted China’s yuan reserve currency status at an executive board meeting today, in a decision that elevates the yuan and China’s influence in the global economy. The group’s benchmark currency basket, also known as special drawing rights, so far only contains the dollar, euro, pound and yen. The yuan will not officially become a reserve currency until September 2016. The yuan’s inclusion is a largely symbolic move, with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket and the biggest change in its composition in 35 years.
Last set in 2010, the basket is currently 41.9% dollar, 37.4% euro, 11.3% sterling and 9.4% yen. Under the new formula, the euro’s share will drop to 30.93%. Sterling and yen will also have lower weights while the dollar remains about the same. There is a big difference between the IMF adding the yuan to its basket of currencies and the yuan actually replacing the dollar as the world’s reserve currency. The addition of the yuan to the SDRs does nothing to harm the US economy.
The Federal Reserve Board is considering a proposal to curb its emergency lending powers, a change demanded by Congress following the central bank’s decision to support “too big to fail” banks in 2008. An open central bank meeting today proposed Dodd-Frank provisions that require any future emergency lending be only “broad-based,” and not tailored to specific firms.
Russian President Vladimir Putin announced additional measures against Turkey on Saturday in response to the recent downing of a Russian bomber on the Syrian border. The new sanctions include the suspension of visa-free travel, halting tours and chartered flights to Turkey and a ban on the hiring of Turkish nationals. Shortly before the decree, Turkish President Erdogan voiced regret over the incident.
Meanwhile, European Union leaders and Turkey have agreed on measures to help stem the flow of migrants to Europe and other border controls, aided by a pledge to relaunch Turkey’s EU membership bid and a €3-billion-euro aid package. The money is intended to raise refugee living standards to persuade them to stay in the country instead of attempting dangerous crossings to the EU via Greek islands. Leaders still haven’t agreed on the final sum or how much each nation will contribute.
The National Retail Federation says more people shopped online over the Thanksgiving weekend than in brick-and-mortar stores. Spending at physical stores still dwarfs online spending, however. The trade group also stuck by its forecast on Sunday that retail sales this holiday season will rise 3.7% this year, below last year’s growth of 4.1%. For the first time in over a decade, however, the group did not release estimates of total spending for the holiday weekend. Black Friday’s importance has waned in recent years, as retailers offered holiday sales earlier and longer. Some industry experts have questioned whether the holiday season itself is losing significance as retailers increasingly offer sales all year round. Sales on Cyber Monday, the busiest day of the year for internet shopping, were up 14% from a year earlier. But for many retailers, Cyber Monday has been too much of a good thing. Neiman Marcus, Target, and Paypal all saw their sites crash today. Malfunctions can result in some serious revenue loss. According to ChannelAdvisor, an e-commerce optimization firm, a retailer could lose roughly 4 to 8% of the day’s digital sales for each hour it’s down.
Regulators may block the merger between Staples and Office Depot. Staples’ $6 billion bid may create one giant corporation with little competition. The agency’s chief concern is that Staples and Office Depot are the only two national office suppliers serving corporate customers. By one estimate, they handle all of the Fortune 1000 office-supply contracts. The Federal Trade Commission is expected to decide whether to sue to stop the deal by December 8. There’s also the possibility that the agency will delay its decision again in an effort to extract more concession from Staples
Anheuser-Busch InBev is aiming to head off European regulatory concerns over its proposed acquisition of SABMiller by selling off the Peroni and Grolsch labels. No price for the brands has yet been indicated. Potential buyers include Heineken, Molson Coors and Ireland’s C&C.
Brazilian authorities are threatening a $7.2 billion legal suit over the BHP Billiton mine disaster in the south-eastern state of Minas Gerais. The amount comes on top of $66 million in preliminary fines by Brazil’s environmental agency for the dam burst, which covered the flood plain in mud for 80 kilometers as well as polluting a major river valley. BHP has also confirmed that the death toll from the disaster had risen to 13, with six people still unaccounted for.