November 25 – It’s the day before the Thanksgiving holiday in the United States with many people already focused on trips to grandma’s house and pre-Christmas shopping traditions. Yet, there is plenty of fodder for the markets to focus on, with the United States raising its threat alert for the next 90 days, while traders also receive a plethora of economic data to digest ahead of what is expected to be an active month of December.
Traders who carry their positions into the Thanksgiving holiday weekend know that they do so amid the risk of another incident to escalate tensions in the Middle East and the heightened threat of another terrorist strike. Market hate uncertainty, but thus far they are learning to weather the storm, although the conditions have helped push the dollar index above 100 for the first time since March 16.
The dollar gained additional support this morning when data showed that durable goods orders rose 3.0% in October, beating Wall Street expectations of a 1.5% rise. The increase comes following a decline of 0.8% in September. Orders for large commercial airplanes were largely behind the October increase, but strength was also seen in orders for most industrial goods except autos and appliances. Orders excluding transportation rose by 0.5% in October, still beating expectations of 0.4% growth. This morning’s durable goods orders data beat the highest of the trade expectations by more than 10%, adding to expectations that the Federal Reserve will raise interest rates for the first time since 2006 on December 16.
Personal income rose 0.4% in October, matching expectations. However, the core PCE price index was flat month-on-month and only up 0.2% year-on-year. The savings rate came in at 5.6%, up 0.3 points from the previous month. This comes on the heels of an unexpected sharp drop in consumer confidence on Tuesday, with survey respondents reflecting increased fears about the employment picture. The data suggests that income is improving, with increased saving good for future spending. However, the drop in consumer confidence and corresponding increase in savings amid flat inflation argues against a rate hike.
Additional data on consumer sentiment and new home sales will be released later this morning. Next week’s monthly jobs report will certainly be a big one, but overall sentiment continues to reflect expectations of a rate hike on December 16. Just as significant for the dollar, and for commodities, is the expectation of an expansion of quantitative easing when the European Central Bank meets December 3, along with fears of another significant devaluation of the yuan at some point soon. Near-term, the dollar appears to be consolidating near 100, but with an upward bias.
That means additional headwinds for the broader commodity sector and the commodity indices that represent the sector. Early money flow is negative for the commodities this morning, although the Ag sector is attempting to move against the tide. Speculative hedge fund managers are heavily short the grains, providing some support as they square positions going into the holiday weekend.
Weather remains benign for the Ags, with the exception of the livestock sector. A holiday winter storm is expected to develop in the Plains that will create problems for feedlots in the region to close out the week, before moving north and east to slow movement of hogs to the market on this holiday-shortened week. Otherwise, timely moisture should be considered beneficial for the U.S. Plains, Former Soviet Union and key growing areas of South America.
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