This week stocks came back sharply, with the S&P having a streak of five days with positive closes. With the bounce back in stock prices, we have seen a rise in yields, with the 10-year at the start of this week at 2.63%, and currently it is at 2.69%. The FOMC minutes release showed a more dovish statement than what was in their initial statement. We are into the third week of the government shutdown, which has been the main story the market has been watching. Markets have also been watching the US-China trade negotiations, which saw no final deal.
ISM Non-Manufacturing Index
The December ISM Non-Manufacturing Index fell 3.1 points to 57.6 from a previous 60.7 in November. Although the index did fall this month, overall sentiment within the sector still points to solid expansion in the months ahead. If we look all the way back to July 2009, the index has averaged 55.3, so even with a weaker number this month, the reading of 57.6 is still well above that average print. Within the report today, we see new orders rising, hitting the highest level since June, and that will remain the overall stronger positive in this headline going forward.
The JOLTS report for November fell to 6.888mln from a previous 7.131mln, now a five-month low. Expectations for today’s headline was 7.079mln. The job openings rate ticked down to 4.4% from 4.5%, while the private sector openings rate also dropped, now at 4.7% from 4.9%. Hires, separations, as well as quits all saw declines in the November data. So, not as strong in recent months, but the labor market is still very strong, and the sector is expected to see continued job growth in the months ahead.
The Fed’s December rate hike was a unanimous vote across the table. That said, there was a higher level of caution in the Minutes that was not mentioned in the Statement, nor in the Powell press-conference. Members have noted a disconnect between financial markets and the economic data of late and indicate that “many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming.” They also noted that recent volatility in financial markets and concerns over global growth make future policy firming less clear. Regarding the balance sheet, Powell is now conveying that all tools could be used in the event of a slowdown. Very different statement than what we heard last month. Overall, the Minutes, if anything, sparked a more dovish tone. Even with the Fed’s continued upbeat outlook to the economy, the suggestion that the Committee could be patient with policy this year is now on the table.
CPI, inflation at the consumer level, was down 0.1% for December, bringing the year-on-year number to 1.9% versus the 2.2% we saw in November. This was in line with Wall Street estimates. Food prices rose 0.3% at the grocery store and 0.4% in restaurants. Core inflation, which is where we strip out food and energy, rose 0.2% and is up 2.2% year-over-year. This also was right in line with estimates. December gasoline prices fell 7.5% for December and is now down 2.1% year-over-year. CPI has decelerated since July, when the year-over-year increase was 2.9% This has been due to a combination of base effects and the lagged effect of the trade war and tariffs on commodity prices, import prices, and core commodities.