Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed. The estimate of 3Q12 GDP growth was revised higher (to 2.7%, from 2.0%), but the details were worse. Most of the revision was due to higher inventory accumulation. Consumer spending growth was revised to a 1.4% annual rate, from +2.0%.
Business fixed investment was also revised down. The report showed a downward revision to income growth over the last two quarters. The October income and spending report showed a clear negative impact from Hurricane Sandy.
However, excluding the storm’s effects, income and spending would have been lackluster (positive, but not particularly strong). The Fed’s Beige Book noted that “economic activity expanded at a measured pace” in October and early November.Investors remained focused on negotiation on the fiscal cliff and reacted to any piece of news suggesting progress or the lack thereof. The two parties remain far apart. Republicans would be willing to accept higher tax revenues (but not higher tax rates), but only if accompanied by reforms to entitlement programs. Democrats don’t want to touch entitlements, but do want to raise tax rates on upper income households.
Both sides agree on retaining the tax cuts for middle income households, so there is some scope for an agreement, but the Democrats hold the upper hand on negotiations (that is, if there is no agreement, tax rates will go up on upper income households and Social Security and Medicare would remain untouched, but the middle class would be thrown under the bus).
Next week, there are plenty of fresh economic data releases, but the market focus will remain on the fiscal cliff negotiations. The ISM manufacturing data may set the tone for the week. In the employment report, nonfarm payrolls are expected to be restrained by the effects of Hurricane Sandy. Looking ahead, the Fed is widely expected to add purchases of Treasuries to QE3 when Operation Twist ends later this year.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.604||1.561|
|Dollars per Euro||1.297||1.333|
|Japanese Yen per Dollar||82.080||77.850|
|Canadian Dollars per Dollar||0.993||1.030|
|Mexican Peso per Dollar||12.957||13.933|
|10-year municipal (TEY)||2.67||3.00|
Treasury Yield Curve – 11/30/2012
S&P Sector Performance (YTD) – 11/30/2012
|ISM Non-Manufacturing Index (November)|
|Motor Vehicle Sales (November)|
|ADP Payroll Estimate (November)
ISM Non-Manufacturing Index (November)
|Jobless Claims (week ending December 1st)|
|Employment Report (November)
Consumer Sentiment (mid-December)
|FOMC Policy Decision, Bernanke Press Briefing|
|Producer Price Index (November)
Retail Sales (November)
|Consumer Price Index (November)
Industrial Production (November)
|Christmas Holiday (markets closed)|
|New Year’s Holiday (markets closed)|
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business November 29th, 2012.