A wave of Data Led to Further Consolidation

The equity market ended in consolidation mode last week, as Monday’s bounce was followed by Thursday’s downdraft. The S&P 500 index lost 0.36% for the week, as markets participants prepared for this week’s holiday week.

Although the markets received a nice boost on Monday, disappointing economic news quickly followed and weighed on investor’s sentiment. The slightly worse than expected euro zone industrial production report (-11.1% y/y on a work day adjusted basis vs. -10.8% expected) spooked investors as the news hinted towards a possible downward revision of the Euro zone’s Q4 GDP forecast. This is in contrast to the US, where last week’s retail sales data hinted towards an upward revision to the US’s Q4 GDP forecast. Euro zone employment also accelerated to the downside, falling -2.1% in the third quarter vs. -1.8% in the second quarter.

In Japan, the Tankan report was also slightly disappointing. The index increased by 9 points to -24, better than the reading of -27 expected. Still, despite three consecutive quarters of improvement last week’s figure was the weakest. Furthermore, the outlook for capital spending was much weaker than expected. Large firms now plan to cut their estimates by -13.8% this fiscal year, worse than the -10.8% drop, forecasted three months ago. This resulted in the third quarter GDP being slashed to 1.3% from the 4.3% initial estimate because of sharply lower capital spending. Due to recent economic data the Tankan survey now suggests that the gloomy trend will continue something that will weigh on investor’s sentiment during this fragile recovery.

Over in the U.S, the US producer price index rose last week by 1.8 % for November, nearly double economists’ projections, as energy prices soared and light truck prices picked up. Compared to last November’s figure, wholesale prices were up by 2.4%, the first such increase in 12 months. Core producer prices, which exclude food and energy, rose by 0.5% in November, also exceeding estimates. Prices for light trucks jumped by 4.2% last month, while cigarette prices swelled by 2.2%. In addition, US consumer prices climbed 0.4% in November, according to government data Wednesday indicating inflation is in check. Excluding volatile food and energy prices, the "core" inflation index was flat for the month. The headline index was in line with expectations, while analysts had been looking for a 0.1% rise in the core CPI. Over the past 12 months, overall prices have increased by 1.8% and core prices have been up by 1.7%.

Inflation data was scrutinized by investors ahead of the rate decision to see if there would be any changes to the wording of the FOMC statement due to the numbers. The Federal Reserve Statement displayed little change from prior statements and alerted that market that monetary easing would continue for a substantial period of time. These comments were expected by market participants and the reaction was already baked into the market’s price.
Employment data also grabbed market participant’s attention as Thursday’s first-time jobless claims rose by 7,000 to 480,000, defying expectations of Wall Street’s economists that the number would drop. The less volatile four-week average of new claims, however, fell by 5,250 to 467,500, maintaining a healthier trajectory.

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