For the most part, the economic data has been pretty encouraging.
And Friday’s strong jobs report has people thinking very carefully about the outlook for monetary policy.
“Regarding the Fed, last Friday’s employment report reinforces our previous view that the Fed will begin QE tapering in December,” said Deutsche Bank’s Joe LaVorgna.
However, LaVorgna’s forecast is not the consensus. Most expect tapering to begin in January or March.
Meanwhile, the stock market continues to trade near all-time highs.
This week’s economic calendar is pretty light. That gives everyone plenty of time to think about their portfolios ahead of the fateful December 17-18 Federal Open Market Committee meeting.
Here’s your Monday Scouting Report:
The Tapering Day Playbook: Since May of this year, any sign that the Fed could begin tapering sooner than later had stocks selling and rates rising.
Here’s Morgan Stanley’s Nick Savone on Friday: “What if The Fed had tapered today? Well, just maybe markets would have reacted a lot like they did this morning after the better than expected employment numbers came out… Following the release, we saw a knee-jerk bid for USD (and a spike in rates), followed by a sharp selloff (and a relief rally in rates) and a slow unwinding of defensive “pro-tapering” positions. Today could be your Playbook for the eventual Tapering Day. It could be that “Tapering” is now priced in, and when the Fed does in fact pull back on its easing efforts, I suspect we will see a sustained rally as growth accelerates. So if today’s stronger NFP number is just another sign that “growth is getting better”, we may just be on our way to a Bullish 2014… That’s if growth is sustainable and accelerating…”
- Job Openings And Labour Market Turnover Survey (Tuesday): Economists expect the JOLTS report to show that there were 3.905 million job openings in October, down from 3.913 million in November. “Labour turnover remains low, but it has been edging up,” noted High Frequency Economics Jim O’Sullivan.
- Monthly Budget Statement (Wednesday): Analyst expect to see that the Treasury department report a budget deficit of $US142.0 billion. “We look for a the US federal government to have posted a budget deficit of $US165bn in November, which would be a $US7bn narrowing relative to the same month last year,” said Barclays’ economics team. “In our view this would reflect continued solid growth in both personal and corporate income tax revenues.”
- Retail Sales (Thursday): Economists estimate that sales climbed by 0.6% in November and just 0.3% excluding autos and gas. “Initial estimates of Black Friday sales showed consumers spending less over the weekend, but the late Thanksgiving may have pulled some sales forward as retailers started discounting earlier in the week,” said Wells Fargo’s John Silvia. “Autos remain a bright spot in the retail sector, however. After a decline in September and October, auto sales in November rose to the highest level in more than six years.”
- Initial Unemployment Claims (Thursday): Economists estimate that initial claims climbed to 320,000 from 298,000 a week ago. “Initial jobless claims probably surged, after unexpectedly dropping during the week of Thanksgiving,” said Citi’s Peter D’Antonio. “However, we view the 42,000 pop as merely payback and not indicative of a new trend. In fact, the average over the weeks ending November 30 and December 7 would be 319,000 — roughly the level of claims just ahead of the holiday distortion.”
- Producer Price Index (Friday): Economists estimate producer prices were flat month-over-month, but up 0.1% excluding food and energy. “With little change in energy prices over the past month and only tepid demand growth, we look for producer prices to have been little changed in November,” said Wells Fargo’s Silvia. “Core price growth likely moderated over the month following a 1.7 per cent increase in passenger car prices, which largely reflected the model year changeover.”
The stock market saw a decent amount of volatility this past week.
“Is this the beginning of a significant correction?” asked market veteran Ed Yardeni. “I doubt it since corrections and bear markets are triggered by mounting concerns about a recession. The latest data are pointing more to a boom than a bust.”