The Markets (as of market close November 18, 2016)

Treasury yields continue to climb as the 10-year rate jumped 20 basis points for the week while exceeding last year’s closing yield for the first time in 2016. The dollar has been keeping pace with rising bond yields, which is good for imports but not so good for exports. Equities have apparently benefitted from money moving from U.S. Treasuries.

The price of crude oil (WTI) increased by last week’s end, closing up slightly from the prior week.

The price of gold (COMEX) continued its downward trend, closing last week at $1,207.30 by late Friday afternoon, down from the prior week’s price of $1,225.50.

The national average retail regular gasoline price decreased to $2.184 per gallon on November 14, 2016, $0.049 less than the prior week’s price but $0.006 more than a year ago.

Last Week’s Headlines

  • The prices consumers pay for goods and services increased slightly in October and more so over the last 12 months.  Components of the Consumer Price index (CPI) that saw price increases include the energy index (3.5%) and the indexes for fuel oil (5.9%) and gasoline (7.0%). The index for food was unchanged for the fourth consecutive month. The index for all items less food and energy (core prices) rose a tad for the second straight month, but is up 2.1% over the last 12 months. The increase in the CPI over the past year is closing in on the Fed’s 2.0% inflation target, which could further strengthen the argument for an interest rate increase next month.
  • Food and services sales at the retail level increased last month.  Total sales for the August 2016 through October 2016 period were up 3.3% from the same period a year ago.  This retail sales report shows increases which bodes well for the fourth-quarter GDP.
  • The prices producers received for goods and services in October did not change compared to the prior month. Year-over-year, producer prices are up 0.8%.
  • October was a banner month for new home construction.   And the new home-building boom should continue as the number of building permits issued in October was ahead of the number of permits pulled in September. Across the country, housing starts experienced substantial gains in the Northeast and Midwest in October.
  • FOMC chair Janet Yellen indicated that economic conditions may be sufficiently improved to prompt the Committee to raise short-term interest rates soon. The Committee has held off raising interest rates this year in anticipation of continued improvement in the labor market and a return of inflation to 2.0%. Nevertheless, Yellen warned that, “were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals.”
  • According to the latest report from the Federal Reserve, industrial production was unchanged in October.  On the positive side, manufacturing output increased, and mining posted a gain. Overall production was pulled down by the index for utilities, as warmer-than-normal temperatures reduced the demand for heating.
  • We’re still paying a little more for products purchased abroad (imports) compared to the prices we’re receiving for products sold overseas (exports). The October imports increases were driven by higher fuel prices, which more than offset declining nonfuel prices. Import prices, excluding fuel, actually fell slightly for the second consecutive month. The price index for U.S. exports increased 0.2% in October following a 0.3% advance the previous month. Despite the recent increases, prices for U.S. exports fell over the past year, declining 1.1%.
  • The National Association of Home Builders Housing Market Index (HMI®) is based on a survey of association members concerning their opinions on the economy in general and single-family housing market conditions in particular. The HMI® for November was 63 – unchanged from October. An index reading above 50 is considered positive. Most members responded before the presidential election, which may explain why levels remained unchanged pending the election results. The index for single-family home sales over the next six months dropped from 71 to 69 in November, while the index for traffic of prospective buyers gained a bit, moving from October’s reading of 46 to 47 for November.
  • In the week ended November 12, the advance figure for seasonally adjusted initial unemployment insurance claims was down somewhat from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate fell 1.4%.
Eye on the Week Ahead
Trading may be light during Thanksgiving week, which could exaggerate any market movements during the holiday-shortened week. Nevertheless, the latest reports on existing and new home sales for October are out, as is the Census Bureau’s report on international trade in goods, which closed September with a trade balance deficit of $56.1 billion.