Assuming most everyone in the United States had a nice Thanksgiving holiday weekend, now it’s back to business as usual for Wall Street and the market: the business of making money.
The week ahead is packed with fresh data for investors to digest beginning with the release on Monday of Construction Spending for October (+0.8% versus the +0.3% consensus) and the ISM Index for November (57.3 versus 55.5), the highest reading since November 2011.
Bond prices fell on these two reports with the 10-year Treasury yield rising to 2.80%. Stocks initially sold off, the idea once again being that the Fed will move up its schedule to taper QE. Don’t count on it. U.S. consumers spent an estimated $57.4 billion during the Thanksgiving weekend, down 2.7% from last year, the National Retail Federation has estimated. The U.S. consumer accounts for two-thirds of GDP growth.
Other notable headlines that deserve our attention include the news that China’s official manufacturing PMI, which focuses on larger state-owned enterprises, held steady at an 18-month high of 51.4 in November and topped consensus of 51.1.
Additionally, growth in eurozone factory activity accelerated slightly. Eurozone manufacturing PMI edged up to 51.6 in November from 51.3 in October, with Germany, Italy, Holland, Austria and Ireland performing well but with France remaining a concern. The data suggest that output is rising at a quarterly rate of only around 0.6% in the fourth quarter so far.
The likelihood of Iran coming back on line to deliver oil to the market has weighed on the WTI and North Sea Brent prices. Oil seems to have found support, trading up at $93.32 per barrel for WTI and $110.12 for Brent. The stronger data have traders buying the dollar, with the U.S. Dollar Index (DXY) up to 80.90 and selling gold, which is down $14.60 to $1,235.80 per ounce.
As interest rates creep back up, rotation into inflation-sensitive and rate-sensitive high-yield assets will be sustainable upon further divestiture of long-dated fixed income that finds its way into higher paying assets that are more levered to an improving economy.