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LIVE MARKETS-Second helpings: Consumer spending/sentiment, inflation, new home sales, etc.,

Wed, 24th Nov 2021 17:31

* Major U.S. indexes down modestly; NYFANG green, transports
red

* Materials biggest loser among S&P 500 sectors; real estate
up
most

* Dollar up; crude, gold, bitcoin down

* U.S. 10-Year Treasury yield ~1.65%

Nov 24 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com

SECOND HELPINGS: CONSUMER SPENDING/SENTIMENT, INFLATION, NEW
HOME SALES, ETC., (1230 EST/1730 GMT)

The economic data parade continues, with mostly lofty
reports wafting by like Macy's balloons.

So reload your plates and forget about leaving room for pie.

American consumers opened their wallets last month, if
somewhat begrudgingly (see University of Michigan, below) as
their incomes crept higher.

Consumer spending increased by 1.3% in October
according to the Commerce Department's personal consumption
expenditures report (PCE), beating the 1% consensus and building
on the previous month's 0.6% gain.

Meanwhile, personal income also beat
expectations, increasing by a less robust 0.5%.

"As we look forward to Thanksgiving, there is much to be
thankful for in this fiscally-stimulated recovery," writes
Gregory Daco, chief U.S. economist at Oxford Economics (OE).
"Real consumer spending is now 4.2% above its pre-Covid level
while real disposable income is 2.4% higher."

Taken together, the saving rate edged down to 7.3% of
disposable income, returning to pre-COVID levels.

While the saving rate is often seen as a barometer of
consumer expectations - Americans tend to stuff their piggy
banks in times of economic uncertainty - the dipping rate could
be partly due to expiring emergency benefits and rising
inflation.

"All wasn’t rosy for US households as they had to contend
with higher inflation, reduced product availability and
diminished fiscal support," Daco adds. "Adjusted for inflation,
real consumer outlays rose a more modest, but still robust 0.7%
with spending on services up 0.5%."

As long as we're on the subject, elsewhere in the PCE
report, the core price index, which strikes out volatile food
and energy prices nailed expectations on the head, rising 0.4%
month-over-month.

Year-over-year, PCE growth also hit a consensus
bulls eye with its 4.1% print.

Core PCE is the U.S. Federal Reserve's preferred inflation
yardstick and the number is closely watched as a potential
harbinger of the central bank's rate hike timeline.

The graphic below shows core PCE along with other major
indicators, all of which continue to soar well above Powell &
Co's average annual 2% inflation target:

Sales of newly constructed U.S. homes increased
by 0.4% in October to according to data from the Commerce
Department.

The gain builds on the previous month's downwardly revised
7.1% growth, resulting in a lower-than-expected 745,000 units at
a seasonally adjusted annualized rate (SAAR).

Still, the increase jibes well with recent reports showing
rebounds in building permits and homebuilder sentiment, and
fleshes out the narrative that the housing sector is finding a
sturdier foundation after pandemic-driven demand spikes and
supply scarcity pushed prices beyond the realm of affordability.

"Prices remain high but gradually rising inventories should
limit further acceleration," says Rubeela Farooqi, chief U.S.
economist at High Frequency Economics. "Fears of higher mortgage
rates as the Fed tapers should bring at least some buyers into
the market."

Speaking of the devil, demand for home loans managed to
increase last week despite an uptick in mortgage rates,
according to the Mortgage Bankers Association (MBA).

Applications for loans to buy homes and
refinance existing loans both crept higher, by 4.7%
and 0.4%, respectively, despite the average 30-year fixed
contract rate gaining 4 basis points to 3.24%.

"We expect home sales to continue to be constrained by
limited inventory and the last year’s spike in prices, which has
eroded affordability for many prospective home buyers," says
Nancy Vanden Houten, lead economist at Oxford Economics. "The
recent rise in mortgage rates, which are up more than 25 basis
points since the summer, has also taken a toll on affordability
at the margin."

Remember the University of Michigan?

Its final take on November sentiment confirmed
that the mood of consumers has soured, dropping 4.3 points to
67.4, only slightly rosier than the advance take released
earlier this month.

But as OE's Daco reminds us "watch what consumers buy, not
what they say."

And the frustratingly un-transitional inflation wave is
largely to blame.

"Consumers expressed less optimism in the November 2021
survey than any other time in the past decade about prospects
for their own finances as well as for the overall economy,"
writes Richard Curtin, chief economist of UMich's Surveys of
Consumers. "The decline was due to a combination of rapidly
escalating inflation combined with the absence of federal
policies that would effectively redress the inflationary damage
to household budgets."

As seen in the graphic below, consumer inflation
expectations continue to run hot, and the spiking year-over-year
PCE price index - the Fed's pet inflation gauge - is confirming
those fears:

Whew.

Wall Street is taking its time to digest the data feast.

However, as stands, the three major indexes are modestly
red.

(Stephen Culp)

*****

THE TURKEY INDICATOR: THANKSGIVING 2021 IS GOBBLING UP MORE
GREEN (1134 EST/1634 GMT)

As U.S. consumers prep for the annual eatathon otherwise
known as Thanksgiving dinner, they're likely seeing notable
differences compared with last year's.

In some cases they may be lucky enough to see more guests
around the table, since around 196 million Americans have been
vaccinated for COVID-19 by now.

But with all this talk of inflation swirling, Live Markets
got curious about the price of laying on this year's feast.

And it turns out that Thanksgiving revelers will need to pay
14% more than last year, with an even higher price increase for
the center piece of the meal, according to the American Farm
Bureau Federation.

While prices around the country will obviously vary hugely,
the national advocate for farmers and ranchers 36th annual
survey, https://www.fb.org/news/cost-of-2021-thanksgiving-meal-higher-than-last-year-survey-shows
using 218 price surveys from all 50 states and Puerto Rico,
gives some indication of the direction.

And this year's survey represents the biggest price increase
the Bureau has seen in all 36 surveys, with the next highest
increase for the entire basket of food standing at 11% in 2011.

This year's shopping bill includes a $23.99 price tag for a
16-pound turkey, or $1.50/lb, which is up an eye popping 24%
from 2020.

Their estimated total bill of $53.31, for 10 people, also
includes stuffing, up 19%; sweet potatoes, up 4%; rolls, up 15%;
frozen peas, up 6%; cranberries, up 11%; and a vegetable tray,
coffee with milk and whipped cream-adorned pumpkin pie.

Adding other popular items like ham, Russet potatoes and
frozen green beans would bump the price up to $68.72, also 14%
higher than 2020, the Farm Bureau says.

To be sure, prices have come down since the Bureau ran its
price checks between Oct. 26 to Nov. 8, which was about 2 weeks
before grocery chains started discounting with the price
dropping to $1.07/lb Nov. 5-11 and $0.88/lb Nov. 12-18. But
according to the Bureau the discounts came later this year.

Meanwhile at Wholefoodsmarket.com, they were selling a
$139.99 oven-ready turkey meal for 8 people. At Walmart, the
Butterball frozen turkey cost about $0.98/lb.

Interestingly enough, regardless of whatever investors hope
to eat Thursday, they do seem to have less appetite for shares
in turkey vendors in at least some cases.

Shares in Hormel Foods, which sells turkeys as well
as other foods, last traded at $43.03 compared with its closing
price of $46.87 on the day before Thanksgiving 2020, Nov. 25.
However, another turkey vendor, Seaboard Corp last
traded at $3,947.50 compared with its Nov. 25, 2020, price of
$3,294.34. Now that's some fancy gravy!

(Sinéad Carew, Terence Gabriel)

*****

DATA FEAST, PART 1: JOBLESS CLAIMS, DURABLE GOODS, GDP, ET
AL (1100 EST/1600 GMT)

Market participants were treated to a veritable buffet of
indicators on Thursday, as economic reports caused a traffic jam
on their way out of town in advance of the Thanksgiving holiday.

So bountiful is this economic cornucopia, this post has been
carved in two. So dig in.

First and foremost, the number of U.S. workings filling out
first-time claims for unemployment benefits plunged
by 26% last week to 199,000, hitting the lowest level since
1969.

Consensus called for a much more modest drop to 260,000.

Of potential concern, initial claims are now actually a hair
below the range typically associated with healthy labor market
churn and is likely evidence of the ongoing labor drought, as
employers grow increasingly reticent to hand out pink slips.

"Workers remain in high demand in a labor market where
payrolls and the civilian labor force remain well below
pre-pandemic levels," writes Rubeela Farooqi, chief U.S.
economist at High Frequency Economics. "Developments on the
health front remain a risk that may weigh on labor supply, but
we expect workers to gradually return to the labor market, as
the cushion from savings diminishes, supporting job growth over
coming months."

Ongoing claims, reported on a one-week lag,
failed to meet analyst forecasts, dipping to a still-elevated
2.049 million.

For context, the number of Americans on unemployment for two
weeks or longer could fill the city of Austin Texas twice over.

Data on long-lasting, U.S.-made merchandise for
the month of October disappointed.

New orders for durable goods - which include everything from
toasters to fighter jets - unexpectedly dropped by 0.5% last
month, defying the modest 0.2% growth projected by economists.

Digging deeper into the Commerce Department's report, a
20.1% plunge in defense goods and a 14.5% drop in commercial
aircraft pulled the headline number into negative territory,
while a 4.8% gain in autos/parts and a 7.9% jump in
communications equipment helped mitigate the decline.

Core capital goods - which excludes aircraft
and defense items and is considered a reliable proxy for U.S.
business spending intentions - rose 0.6%, edging higher than
consensus and building on September's upwardly revised 1.3%
growth.

"The ongoing surge in core capital goods orders, which are
some 20% above their pre-Covid trend, and still rising rapidly -
is a strong indication of faster productivity growth, which will
help offset rapid wage gains and thereby constrain inflation,
once the near-term Covid-driven surge abates," says Ian
Shepherdson, chief economist at Pantheon Macroeconomics.

An advance reading on U.S. goods trade and wholesale
inventories for the month of October was also release by the
Commerce Department.

The gap between the value of goods imported to the U.S. and
domestic goods exported overseas contracted $87.9
billion as rebounding foreign demand prompted a surge in
exports.

"The goods deficit contracted sharply in October on a
historic month for exports," writes Mahir Rasheed, U.S.
economist at Oxford Economics (OE). "While the latest data may
signal a turning point as import growth moderated, risks from
the pandemic will continue to dictate trade flows heading into
2022."

Meanwhile, the value of goods stored in the warehouses of
U.S. wholesalers increased by 2.2% last month,
building on September's 1.4% growth.

This bodes well for the broader economy, as private
inventories had been a drag on GDP for four straight quarters
until its modest contribution in Q3.

Speaking of the devil, the very busy Commerce Department
also released its second stab at third-quarter GDP,
revising it slightly higher to a 2.1% quarterly annualized
rated, coming in a hair below the 2.2% economist forecast.

The print confirmed an expected slowdown in economic
recovery from the shortest and steepest contraction on record.

"After experiencing one of the most severe economic shocks
of the past century in 2020, the US economy has displayed one of
the most rapid recoveries in modern history in 2021," says
Gregory Daco, Chief U.S. economist at OE. "Still, it's not time
to pop the Champagne!"

"The next stage of the recovery will be trickier to navigate
with an unresolved health situation and less fiscal support,"
Daco adds.

Crucially, the consumer spending component - which does the
heavy lifting, accounting for about 70% of the economy - was
upwardly revised to 1.7% from 1.6%.

But as seen in the graphic below, that gain was entirely
thanks to spending on services, with a decline in spending on
durable goods echoing the monthly data.

Wall Street appeared to be saving its risk appetite.

All three major U.S. indexes were lower in morning trading,
with tech weighing heaviest on the benchmark S&P 500.

(Stephen Culp)

*****

WALL STREET FALLS WITH DISCRETIONARY WEAKNESS (1010 EST/1510
GMT)

U.S. stocks are lower in early Wednesday trading, with
consumer discretionary leading sector declines in the S&P 500
following some disappointing results from retailers including
Gap

Gap shares are down more than 22% in early trading, while
Nordstrom is down more than 27%, also following
quarterly results. The discretionary index is off about 0.6%
early.

Nordstrom said labor costs pinched its quarterly profit and
warned of product shortages at its off-price stores heading into
the holiday season.

(Caroline Valetkevitch)

*****

BOFA SETS 4,600 TARGET FOR S&P 500, DRAWS PARALLEL TO 2000
(0911 EST/1411 GMT)

BofA Global Research set a 4,600 target for the S&P 500 at
year-end 2022 and compared this year's market exuberance shown
in retail trading mania and frenzied IPO activity to the market
activity in 2000 in its U.S. equity outlook note.

"There are too many similarities between today and 1999/2000
to ignore," wrote a group of strategists led by Savita
Subramanian, further noting that one out of four of the IPOs of
1999 are today's blue chips.

The PT implies around 2% downside to S&P 500's last
closing price of 4,690.70 as strategists said rising wage growth
is one of the biggest headwinds for companies heading into the
new year.

They add that the 'TINA' (there is no alternative) argument
for equities would be less compelling if cash yields rival the
current S&P 500 dividend yield of 1.3%, and if the 10-year U.S.
Treasury yield rises to 2% by 2022-end, as BofA rates
strategists have predicted.

Strategists prefer to stick with small caps and expect the
group to outperform large caps at least in H1 2022.

Among S&P sectors, BofA is overweight energy and
financials that offer inflation-protected yield as well
as healthcare, and underweight communication services
, consumer staples and consumer
discretionary.

Here's a look at some of the top Wall Street analysts'
outlook for U.S. stocks in 2022.

(Medha Singh)

*****

NASDAQ COMPOSITE: CAN'T CATCH ITS "BREADTH" (0900 EST/1400
GMT)

The Nasdaq Composite is only down around 1.8% from
its Nov. 19 record-high close. That said, measures of internal
strength continue to show broad, and intensifying, weakness.

For example, the Nasdaq daily advance/decline (A/D) line
topped on Feb. 9 of this year, before ultimately collapsing to a
9-month low in mid-August:

Despite, IXIC new highs since then, including just late last
week, this closely watched breadth measure remains well shy of
its 2021 highs. Earlier this month, it failed to reclaim its
200-day moving average.

So far this year, there have been 39 negative breadth days.
That is, the Composite closed higher, but the A/D line fell that
day. Of note, around 15% of those days have occurred in just the
past 30 days or so, suggesting recent internal tension.

Also, of those 39 negative breadth days, 16 of them occurred
with the composite registering a record close. Three of them
have occurred in November, with the last such day Nov. 19, or
what is now the Composite's 16,057.44 record close.

Just looking back to early 2020, periods of A/D-line
divergence vs the Composite, as well as nearby clusters of
Nasdaq record-high closes/negative breadth days, did precede
varying degrees of IXIC instability.

Additionally, the A/D line has now fallen seven-straight
days and is threatening its August trough. A break below this
level will put it at a more than one-year low.

Therefore, unless the Nasdaq can quickly catch its
"breadth," risk remains for a much deeper decline from the
recent peak.

(Terence Gabriel)

*****

FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE:

(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)

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