Here’s The Asset Guidance Group Outlook for the Week Ahead… 

A massive week awaits ahead of the holiday season, focusing on inflation and central banks. It all kicks off with U.S. CPI on Tuesday, with November’s reading expected to edge down to 7.3% YoY from 7.7% in October. It’s the final key piece of data before Wednesday’s FOMC meeting, and Fed Funds futures are currently
pricing in a 77% probability of a 50bps hike, which is far from a certainty. A disinflationary print could reinforce the idea that inflation has peaked and set the path towards a smaller rate increase in January. Elsewhere, the Bank of England is grappling with 6% wage growth and still rising inflation as it meets Thursday,
where a 50bps hike is likely. The European Central Bank gathers on the same day,
and contrary to President Lagarde’s recent comments there are signs of price increases slowing, which may prompt a downshift to only a 50bps raise. If all that
wasn’t enough, on Friday global flash PMIs will be released. Other U.S. events of
note include retail sales, Treasury auctions, and the Philly Fed Manufacturing
Index. Overseas, take note of UK GDP on Monday, EU economic sentiment on
Tuesday, and China’s retail sales and industrial production figures late Wednesday. [1]

International:

Canada’s TSX retreated -2.6%, while the United Kingdom’s FTSE 100 pulled back -1.1%.  On Europe’s mainland, France’s CAC 40 and Germany’s DAX ended the week down -1.0% and -1.1% respectively.  In Asia, China’s Shanghai Composite finished the week up for a sixth consecutive week, adding 1.6%.  Japan’s Nikkei rebounded 0.4%.  As grouped by Morgan Stanley Capital International, developed markets finished down -1.2%.  Emerging markets ended the week down -1.3%.

Commodities: 

Energy markets continued to get pummeled.  West Texas Intermediate crude oil plunged -11.2% to $71.02 per barrel, along with Brent crude which finished down -10.2%.  Precious metals maintained their luster.  Gold finished the week up $1.10 to $1810.70 per ounce.  Silver rose 2% to $23.72.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, ended the week up 0.7%. 

U.S. Economic News  

The number of Americans filing for first-time unemployment benefits climbed last week, a sign the red-hot labor market may be slowly cooling off.  The Labor Department reported initial jobless claims rose to 230,000, up 4,000 from the prior week and matching estimates.  The number of people applying for jobless benefits is one of the best barometers of whether the economy is getting better or worse.  New unemployment filings have gradually risen from a 54-year low of 166,000 last spring.  Meanwhile, the number of people already collecting benefits, known as “continuing claims”, rose by 62,000 to 1.67 million.  That’s the highest reading since February.  Chief economist Joshua Shapiro of MFR Inc. stated, “While the level of initial claims remains very low on a historical basis, signaling that the labor market remains reasonably vibrant, an uptrend does appear to be starting.”

The U.S. economy continued to grow last month according to a survey from the Institute for Supply Management (ISM).  ISM reported its service-sector index, which makes up the vast majority of U.S. economic activity, climbed 2.1 points to 56.5 in November—a strong sign that the economy continues to expand steadily.  Readings over 50 signify the economy is still growing and above 55 are viewed as exceptional.  The reading exceeded the consensus forecast for a 0.7-point decline to 53.7.  In the details, the production gauge jumped 9 points to 64.7, while new-orders pulled back half a point to a still-strong 56%.  Some positive news on the inflation front, the prices-paid index fell 0.7 points to 70%.  Prices are rising much more slowly than they were in the spring.  Still, the report wasn’t strong enough for many analysts to change their views of an impending recession.  Oren Klachkin, lead U.S. economist at Oxford Economics wrote in a note to clients, “Activity remains fairly resilient for now, but we believe that it’s only a matter of time before Fed interest-rate hikes and tighter financial conditions push the economy into a recession.”

Consumers continued to borrow at a solid pace in October, the Federal Reserve reported.  Total consumer credit rose $27.1 billion, up from $25.8 billion the prior month.  From the same time last year, borrowing is up 6.9%, up 0.3% from the prior month.  Economists had been expecting a $26 billion gain, according to a Wall Street Journal forecast.  Revolving credit, mainly credit cards, rose 10.4% in October after an 8.2% gain in the prior month.  Non-revolving credit, typically auto and student loans, rose 5.8% down from a 6.1% growth rate in the prior month.  Of note, according to separate data from the New York Federal Reserve Bank, credit card balances are up 15% over the past year—the largest increase in more than 20 years. 

Prices at the producer-level picked up last month but slowed slightly on an annual basis.  The Labor Department reported wholesale prices rose 0.3% in November, slightly above forecasts for a 0.2% rise and its third consecutive increase.  The core producer price index, which excludes volatile food, energy, and trade prices, also rose 0.3% in November, up from a 0.2% gain in the prior month.  The increase in producer prices over the past 12 months slowed to 7.4% gain from 8.1% in the prior month.  That is the slowest annual advance since May 2021.  Although hotter than expected in November, inflation at the wholesale level is showing steady deceleration from its peak in March.  Matthew Martin, economist at Oxford Economics wrote, “PPI inflation continued to trend downwards, but economic momentum will keep it elevated until at least the second quarter of next year.”  [2]

Random Thought/Image of the Week

As inflation and shortages of key components pushed the average price of a new car to all-time highs (if you could even get one), it is logical that prices on used cars would follow suit – and they did.  However, the bloom is off that rose and wholesale prices of used vehicles reached their lowest level in more than a year last month as interest rate hikes raised borrowing costs and fears of an imminent recession continue to spread.   Cox Automotive reported that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November. Retail prices have not fallen as sharply as wholesale prices but are expected to follow suit.  (Chart from CNBC.com). [3]

Chart of the Week: 

Last week brought some relief to skyrocketing interest rates. The 30-Year Treasury Index (TYX) broke above important technical resistance at 40 (4.0% yield) two weeks ago, which was also the high print from the prior 10 years. Last week a small retracement dropped the rate from 4.4%
back to 4.1%, which is larger than it sounds. Long-term rates are still above the
important 4.0% mark, so will the new potential support hold, or does the correction continue? Click here to view chart [4]

Sources: [1] tdainstitutional.com; [2] [6] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab; [3] chart from cnbc.com; [4] tdainstitutional.com; [5] SIMON portal, FIGmarketing.com.

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