Markets slide while waiting for the November jobs report tomorrow

Dow lost 194, advancers over decliners 4-3 & NAZ crawled up 14.  The MLP index was off 1 to the 227s & the REIT index pulled back 1+ to the 391s.  Junk bond funds were mixed & Treasuries  saw very buying & Treasury yields plunged.  Oil was up about 1 to the 81s & gold surged 55 to 1815 (more on both below).

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US manufacturing activity contracted in Nov for the first time since the early days of the COVID-19 pandemic as steeper borrowing costs weighed on demand for goods.  The Institute for Supply Management said that its gauge measuring factory activity fell to 49 from 50.2 in Oct, marking the first contraction & the weakest reading since May 2020.  Readings above 50 represent expansion in the manufacturing sector – which accounts for about 11.3% of the US economy – while readings below 50 represent contraction.  "The November composite index reading reflects companies’ preparing for future lower output," Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said.  Of the 6 biggest manufacturing industries, just 2 – petroleum & coal products & transportation equipment – registered growth last month.  In total, just 6 industries reported growth, while 12 shrank in Nov.  Meanwhile, the survey's forward-looking new orders sub-index fell further to 47.2, the 3rd straight month of contraction.  A measure of prices paid for materials used during production dropped for the eighth straight month, with input prices shrinking at the fastest pace since May 2020 – evidence that goods inflation could be starting to ease as supply chain disruptions fade.  The gauge comes amid growing fears that the Federal Reserve will trigger a recession as it embarks on the fastest tightening course since the 1980s in order to crush inflation.

US manufacturing activity shrinks for first time since 2020

The Federal Reserve's preferred inflation gauge, rose less than expected in Oct, but prices remained elevated near a 4-decade high, according to new data.  The Personal Consumption Expenditures (PCE) index showed that core prices, which strip out the more volatile measurements of food & energy, climbed 0.2% from the previous month & rose 5% on an annual basis, according to the Bureau of Labor Statistics.  Those figures are slightly lower than the 0.3% monthly increase & in line with the 5% annual increase forecast.  The more encompassing headline figure rose 6% on an annual basis after prices rose 0.3% from the previous month, the same as Sep & Aug.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.  "Core inflation is a better predictor of inflation going forward," Powell said.  "Headline inflation tends to be volatile."  Both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades.  Policymakers have already approved 6 consecutive rate hikes, including 4 back-to-back 75-basis-point increases, & have shown no signs of pausing.  Although Powell yesterday signaled a preference for a slightly smaller, 50-basis-point increase at the central bank's meeting later this month, he stressed that policymakers have more work to do in order to crush inflation.

Inflation remains painfully high despite prices slightly cooling

Mortgage rates continued downward for a 3rd week, as the Federal Reserve's preferred inflation gauge showed prices cooled in Oct while still near a 4-decade high at 6% annually.  The Federal Reserve, while still likely to raise rates again in Dec, has become less hawkish on the extremity of the hikes.  The 30-year fixed-rate mortgage averaged 6.49%, down from 6.58% last week, according to Freddie Mac.  A year ago, the 30-year m m week when it averaged 5.90%.  A year ago, the 15-year FRM averaged 2.39%.FRM averaged 3.11%.  The 15-year fixed-rate mortgage averaged 5.76% also down from last week when it averaged 5.90%.  A year ago, the 15-year FRM averaged 2.39%.  "Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year," said Sam Khater, chief economist at Freddie Mac.  Mortgage rates are still more than double what they were in early January, mirroring a sharp rise in the yield on the 10-year Treasury note.  The yield is influenced by a variety of factors, including global demand for Treasurys & investors’ expectations for future inflation, which heighten the prospect of rising interest rates overall.  The sharp rise in mortgage rates this year, combined with still-climbing home prices, have added hundreds of $s to monthly home loan payments relative to last year, when the average rate on a 30-year mortgage barely got up above 3% much of the time.  That's created a significant affordability hurdle for many would-be homebuyers, spurring this year’s housing market downturn. Last month, sales of previously occupied homes fell for the 9th consecutive month, hitting the slowest pre-pandemic annual sales pace in more than 10 years.

Mortgage rates decrease for third week in a row

Gold futures climbed to finish at their highest price since Aug buoyed by weakness in the $ & Treasury yields after Federal Reserve Chair Jerome Powell indicated that policy makers may deliver a smaller rate increase this month.  Gold for Feb rose $55 (3.1%) to settle at $1815 an ounce.  Based on the most-active contracts, prices ended at their highest since Aug 12.

Gold futures mark their highest settlement since August

Oil futures climbed, with US prices posting their highest settlement in 2 weeks.  Prices got a boost as China moved to ease some COVID-19 restrictions ahead of a meeting of major oil producers set for Sun.  With the apparent easing in China's COVID policy, the possibility that the Federal Reserve is going to slow its interest rate hikes, & the somewhat improved inflation news, it seems likely that OPEC+ will keep production steady.  US benchmark WTI crude for Jan rose 67¢ (0.8%) to settle at $81.22 a barrel, the highest finish for a front-month contract since Nov 17.

U.S. oil futures end at highest in 2 weeks

Dow saw selling.  Treasuries were heavily purchased causing yields to plunge, while tech heavy NAZ stayed near even.  Favorable data on the Fed's favored inflation index did not bring out many stock buyers & other economic figures are coming in mixed.  Fears of a recession appeared to outweigh easing inflation & signals of a slower pace & magnitude of rate increases later this month.  Investors will monitor the Nov jobs report tomorrow.

Dow Jones Industrials