Equities mostly pulled back last week, with Dow and S&P 500 components consolidating from record highs the week prior. The driving force was, of course, speculation about what the Federal Reserve will do with its economic stimulus policy when it meets on December 17 – 18. A flurry of strong economic data last week was primarily cited for the stock sell-off up to Friday as the reports increased the likelihood that the central bank would begin ratcheting down its policy of purchasing $85 billion each month in assets that has been ongoing since September 2012. When the non-farms payroll report hit on Friday showing that the nation created a better-than-expected 203,000 jobs in November, Wall Street rallied with the Dow and S&P 500 erasing a big chunk of the weekly losses. This time, the media spoke out of the other side of their mouth, reporting that the strong economic data was the catalyst for the one-day run after five straight days in the red. Realistically, it was just time for some profit taking after the Dow hit a record intraday high of 16,174 on November 29. In fairness, attributing the driver to interpretation of the data’s impact on the Fed can’t be used one way on a down day and another way on an up day; it’s just filling the need for a headline.
On that point, the early part of the week is relatively void economic data in the U.S., so it’s quite possible that early week action could be viewed as how comfortable that markets are with the idea that tapering could be coming sooner, rather than later. Fed presidents Charles Plosser (Philadelphia) and Dennis Lockhart (Atlanta) last week put a December taper firmly on the table, including Plosser saying it’s time to “gracefully exit” QE3. Economist expectations generally range from this month through March for the Fed to begin scaling back asset purchases.
The few pieces of “market moving” economic data that are scheduled for this week:
Thursday
Initial Jobless Claims for the Week Ended December 7 – Last week, the Labor Department reported that first time filings for jobless benefits dropped by 23,000 to 298,000 claims, handily beating expectations. This was first time that the number of claims was under 300,000 since the week ended September 7. The four-week moving, a less-volatile measure of labor trends, declined to 322,250 from a revised 333,000 the week prior. If there is any dark cloud hanging over the steadily improving figures, it is the holiday season that makes it difficult for the Labor Department to accurately tally the data on a seasonally-adjusted basis. Economists are expecting claims to jump back up with this week’s report, predicting a rise to about 329,000 new filings.
Retail Sales for November – This may be the most heavily analyzed report for the week as it includes sales from the five-day sales event that unofficially kicks-off the holiday shopping season. Last month, the Commerce Department said that retail sales rose 0.4 percent in October, while revising September sales from a decline of 0.1 percent to show no gain. The rise in October demonstrated that the 16-day partial government shutdown had little-to-no impact on consumers opening their wallets; a surprise given that economists thought the standoff in Washington would weigh heavily on consumer confidence. Automakers had a strong month in November and eCommerce sales surrounding Black Friday were better than the year earlier, paving the way for economists to expect retail sales to rise by 0.7 percent. Ex-autos, retail sales are predicted to climb by 0.3 percent.
Friday
Producer Price Index for November – In October, the PPI (which measures the prices received by the nation's farms, factories and refineries) fell by 0.2 percent, according to the Labor Department. This followed a 0.1-percent drop in September. So-called “core” PPI, which excludes the volatile food and energy categories, increased by 0.2 percent from September to October. Compared to October 2012, the core PPI was up 1.4 percent, indicating that inflation remains muted. For November, economists are expecting the headline PPI to drop by 0.1 percent and the core PPI to expand by 0.1 percent.
