Weekly Market Report: November 25, 2022
Markets delivered the typical ultra-low volume week with the Thanksgiving holiday and the corresponding 3 1⁄2-day week. Drivers during the week included several energy market anecdotes, Chinese zero Covid policy angst, and a modest economic calendar. The S&P 500 managed to post a respectable gain of 1.5% aided again by another decline in interest rates which fell for all maturities two years and out while short rates edged slightly higher (flattener). Commodity markets fell again last week with oil trading below $80 for the first time since a brief spell in late September while the USD weakened against most major currencies.
Market Anecdotes
- In a year of double-digit ups and downs, the S&P 500 last week marked a new high in this most recent rally. Technicals are somewhat encouraging and falling credit spreads have confirmed this recent equity market move while interest rate sensitive sectors have been outperforming.
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The yield curve flattened further last week which has now been inverted (3m/10yr) for over 10 consecutive days – a duration which carries an eight-for-eight track record over the last 50+ years in predicting recession.
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Headline CPI peaked at 9.1% in March, and it is currently at 7.7%. Core CPI peaked at 6.6% in September and is currently 6.3. Yes, the hard data and soft evidence clearly support a peak inflation in the rearview mirror case.
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FOMC meeting minutes reinforced the view that the pace of Fed tightening will slow in December and pause sometime in Q1 or Q2 of next year.
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The BCA Li Keqiang Leading Indicator illustrates why keeping hopeful expectations in check regarding a Chinese stimulus driven recovery is our base case. Not since the 2012 and 2015 downturns have Chinese policymakers responded relatively aggressively.
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Given last week’s large U.S. Treasury debt issuance and the FOMC sitting out of the September/October auctions, it’s interesting to revisit the composition and trends of the buyers showing up.
Economic Release Highlights
- November U.S. PMIs (C, M, S) of 45.3, 47.6, 46.1 slid a little deeper into contraction territory and fell short of consensus estimates. Eurozone PMIs of 47.8, 47.3, 48.6 improved slightly and surpassed expectations.
- October Durable Goods Orders exceeded expectations on the headline (1.0% vs 0.4%), ex-transportation (0.5% vs 0.1%), and core capital goods (0.7% vs 0.2%).
- October New Home Sales of 632k came in above the consensus range and point estimate of 575k.
- The final revision on U of M Consumer Sentiment at 56.8 came in above the consensus range and point estimate of 55.
