December 11th – Weekly Update

  • Stocks gave ground for the week, declining everywhere except Europe. U.S. bourses slid during the week as Congress grappled with the details of tax reform. Stocks regained momentum, however, on encouraging employment data and news that the U.K. and European Union had reached an agreement on Brexit terms. Oil prices were slightly down for the week, whereas gold fell significantly. The yield on the 10-year U.S. Treasury note closed at 2.38%, up slightly from the prior week.
  • November payrolls beat expectations while wages disappointed. Nonfarm payrolls increased 228,000 in November, following a downwardly revised 241,000 October increase, yet still ahead of consensus expectations for 200,000. Unemployment remained at 4.1%, nearly a 17-year low. Average hourly earnings disappointed, increasing 0.2% vs. October and 2.5% year-over-year, vs. the 0.3%/2.7% consensus.
  • The jobs report will likely to play into the ongoing Phillips Curve debate, though the Federal Reserve consensus still seems to revolve around expectations that a tight labor market will eventually drive a more pronounced acceleration in wage growth. The report is not expected to influence next week’s Fed meeting.
  • The Fed is expected to deliver a third 25-basis point rate for 2017 as the combination of labor market tightness, easy financial conditions and a desire to move further off the zero bound continue to drive its policy calculus.
  • November’s ISM non-manufacturing index came in at 57.4, still well in expansionary territory but down from October’s 60.1 reading and missing the consensus for 59.0. Markit’s U.S. services PMI also was down, with November coming in at 54.5 vs. October’s 55.1 level. This was a slight miss from consensus of 54.7.
  • The U.S. managed to avoid a government shutdown, at least for the next two weeks, as both the House and Senate passed a stopgap funding bill. In terms of taxes, some of the focus in the press was on Sen. Susan Collins (R-ME) and the potential stumbling block she could present if Congress does not address the healthcare fixes that she was promised in exchange for her support on the tax bill despite its repeal of the individual mandate.

CPWM Weekly Market Monitor (2017.12.08)