Market Update: Wednesday, November 30, 2016

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  • Stocks up, oil spikes on OPEC deal. U.S. equities are moving higher in early trading, boosted by a 7% jump in the price of WTI crude oil ($48.40/barrel) following news that the Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut output by 1.2 million barrels/day. Energy stocks will look to bounce back from a 1.2% loss yesterday, the notable laggard in a relatively quiet session; the S&P 500 closed up by 0.1%. Overnight, Asian markets finished mixed with the Nikkei eking out a 0.01% gain to post its fifth consecutive positive session, while the Shanghai Composite moved down 1.0%. European stocks are higher across the board, buoyed by banking and energy stocks; Italy’s MIB leads the way, up 1.1%. Finally, COMEX gold is nearly down 1% to $1,180/oz., and the yield on the 10-year Treasury has climbed 8 basis points to 2.38%.

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  • OPEC deal takes shape. The details have yet to be announced, but it appears that OPEC has agreed to cut oil production by 1.2 million barrels/day, the first production cut since 2008. Iran would likely be exempted from any cuts, as it is still struggling to increase production to its pre-sanction level of 3.9 million barrels/day. With Libya and Nigeria also believed to be exempted from change, this leaves Saudi Arabia to do most of the heavy lifting in terms of production cuts. There are also rumors that non-OPEC producers, notably Russia, have also agreed to production cuts. There have been no official statements at this time, but oil is up roughly 7% as the news has been leaking out of the meeting.
  • Under new methodology, ADP employment report continues to suggest tightening labor market. Until recently, ADP, the nation’s largest payroll processing firm, used only its database of payroll data to make its estimate of private sector employment each month. A few years ago, ADP started adding other, publicly available data on employment to supplement its forecast, and effective as of last month’s  (October 2016) report, added oil prices, initial claims, consumer sentiment, and the Conference Board Leading Economic Index (LEI). The November 2016 reading said that the economy created 216,000 new private sector jobs, 46,000 more than expected by the consensus of economists as polled by Bloomberg (+170,000). But the October reading on ADP, originally reported as a 147,000 gain, was revised sharply lower to show a 119,000 increase.  The ADP report, once a key input for making forecasts of the Bureau of Labor Statistics‘ jobs report, has faded recently as a forecasting tool, as it no longer relies on just its own, proprietary information.
  • Personal income, spending, and inflation data for October keep the Fed on track to tighten in December. The October personal income and spending report (along with the usual revisions to September) was already baked into the revised Q3 gross domestic product (GDP) report released on Monday, November 28. While personal income (+0.6%) rose more than expected (+0.4%) in October, the gain in personal spending (+0.3%) in October fell short of expectations (+0.5%). The Federal Reserve Bank’s (Fed) preferred measure of inflation, the personal consumption deflator excluding food and energy, posted a 1.7% year-over-year increase in October, matching the consensus expectation and the September increase.  Both personal income and personal spending are running about 4% ahead of their year-ago level, a sign that consumers are not overborrowing to fund consumption. Today’s data do little to change our view that the Fed remains on track to raise rates by 25 basis points in December and to hike rates by 50 basis points during 2017.
  • Last day of a good month. Today is the last trading day of November, and it has been a great month for equities. As of last night, the S&P 500 was up 3.7% for the month, which would be the second-best month of the year (March 6.6% was the best). This would be the best November since a 5.7% gain in 2009. The real winner this month was small caps though, as the Russell 2000 was up 11.5% as of yesterday, for the best monthly gain since 15.0% in October 2011.
  • Another sign of economic improvement? On the heels of yesterday’s revised higher 3.2% Q3 GDP print, the Commerce Department reported that after-tax earnings across U.S. corporations rose 5.2% in Q3 from a year earlier. This was the first annual increase since late 2014, and it was the strongest year-over-year growth since Q4 2012 (which came in at 10.4%).

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Wednesday

  • Personal Income and Spending (Oct)
  • Chicago Area PMI (Nov)
  • Beige Book
  • Mester (Hawk)
  • OPEC Meeting in Vienna
  • China: Official Mfg. PMI (Nov)
  • China: Official Non-Mfg. PMI (Nov)
  • China: Caixin Mfg. PMI (Nov)

Thursday

  • ISM Mfg. (Nov)
  • Vehicle Sales (Nov)
  • Mester (Hawk)

Friday

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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