Economic Data, Fed Minutes Confirm Rate Outlook

Economic Data Supports Monetary Tightening  Investors received a plethora of data prior to heading into the Thanksgiving holiday, all pointing towards a strong and growing economy.  Durable goods orders jumped 4.8% in October, surpassing estimates of 1.7% after experiencing a surge in demand for commercial aircrafts.  Excluding defense and aircraft goods, demand for items such as computers, engine and communications equipment rose 0.4%, just above forecasts of 0.3%.  Orders for these core capital goods have increased four out of the past five months, a potential indication that business equipment spending may increase for the first time in over a year.  Other data today revealed a marginal rise in initial jobless claims.  The weekly claims number increased to a seasonally adjusted 251,000, higher than last week’s 43-year low, but certainly within a range described as a tightening labor market.  Overall consumer sentiment released by the University of Michigan displayed a 93.8 reading, above expectations of 91.6 and more than 8 points higher than pre-election levels.  The fiscal stimulus promised by Donald Trump has generated a positive view from consumers with regard to their future personal finances.  Today’s lone data shortcoming was new home sales, which reported 563,000 for the month of October (590,000 expected), down almost 2% from the previous month.  Declines were reported in three of four regions, with the West showing the only uptick in housing sales (+8.8%).      

Fed Minutes In-line with Hike Expectation
Minutes from the FOMC meeting dating back prior to the election in early November were released today.  Commentary in the report confirmed much of the rhetoric that’s been given by Fed officials over the past few weeks, namely that a rate hike would be warranted “relatively soon” as long as “gradual increases” were represented in economic data.  A tightening labor market was referenced, with the unemployment rate holding at 4.9%, just above levels deemed full employment by the Fed.  The second portion of the Fed’s dual mandate, inflation, was also recognized as needing to be a touch better, although two officials still dissented in favor of a rate increase.  With current expectations of a rate hike near 100% after Donald Trump’s promise for fiscal stimulus, the U.S. dollar rallied to its highest level in more than ten years.  The dollar index gained more than 0.5% during today’s session, highlighted by a 1.1% rise against the Japanese yen and 0.6% climb against the euro.  Also continuing to be impacted in the post-election environment, bond prices dropped substantially throughout the day.  Treasury yields increased as much as 11bps, with the belly of the curve facing the sharpest movements.  Stock indexes were mixed on the day as the DJIA hit an all-time high for the third day in a row while the Nasdaq and S&P 500 showed negligible declines.  Industrial shares, whose values continue to be propped up by the projection for increased infrastructure spending, contributed the most gains to the Dow Jones while major tech stocks weighed down other indexes.

Have a great holiday.