U.S. and International Equities
Major Markets Higher
The major equity markets finished the week solidly higher, reversing last week’s declines. Traders took solace in the health reports that the effects of the Omicron variant may not be as much of a threat as originally feared. Developed international equities, as represented by the MSCI EAFE Index, followed U.S. markets higher. Emerging markets, as represented by the MSCI EM Index, had a positive week even amid Chinese property developer Evergrande’s default.
High Quality Bonds Selloff
The Bloomberg Aggregate Bond Index finished lower this week. High-quality bonds sold off as traders added risk in the wake of lessened concerns over the Omicron variant’s potential effect on economic activity. This sentiment carried over to high-yield corporate bonds, as tracked by the Bloomberg Barclays High Yield index, as these bonds had an excellent week.
Commodities finished the week mixed as some traders took solace that the Omicron variant’s effect on the global economy and travel may not be as bad as originally feared. Crude oil prices finished over 8% higher this week. Moreover, natural gas continued its slide as prices dropped another 5% this week after the commodity sold off almost 25% the week prior.
Economic Weekly Roundup
Highest CPI Reading in Almost 40 Years
The Consumer Price Index (CPI) rose 6.8% year over year in November. This reading was in line with expectations and came in above October’s year over year reading. Moreover, November’s CPI marked the seventh consecutive month above 5% year-over-year growth. Core CPI, which excludes food and energy prices, rose almost 5% year over year, in line with forecasts and above October’s reading. This was the highest reading since 1991.
U.S. Trade Deficit Narrows in October
After assuming a record trade deficit for the United States in September given the Delta variant, the Commerce Department reported that the October trade deficit declined to over $67 billion, which came in slightly better than economist expectations. The report showed an increase in exports of industrial supplies and materials as well as a vast increase in exports of various capital, consumer, and agriculture goods along with automotive vehicles and related parts.
Jobless Claims Decline below 200k; JOLTS Drop
Initial claims for unemployment insurance were reported at just under 185k for the prior week. This is the second initial claims reading below 200k since the genesis of the pandemic. Continuing claims increased slightly from the revised previous week, but still remained below 2 million. The Job Openings and Labor Turnover Survey (JOLTS) data released Wednesday by the Bureau of Labor Statistics showed that the quit rate, which are the workers who voluntary left their jobs, declined from recent record levels. The overall quit rate fell from 3% in September to just under 3% in October which equates to almost 4.2 million people who left their jobs during the month. Quit rates have typically been a leading indicator for wage inflation by up to 12 months, which adds confidence to our belief that we may not have yet seen "peak inflation”.
The following economic data is slated to be released during the week ahead:
- Tuesday: November National Federation of Independent Business (NFIB) November Small Business Index, November Producer Price Index
- Wednesday: Federal Open Market Committee Meeting, November Export/Import Prices, November Retail Sales, December National Association of Home Builders (NAHB) Housing Market Index
- Thursday: Weekly Initial and Continuing Unemployment Claims, November Building Permits, November Housing Starts, December Markit and Composite Purchasing Marketing Index, November Capacity Utilization, Industrial and Manufacturing Production Statistics
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