It’s been an impressive November so far but the rally is running on fumes as we near the end of the month, despite the Dow breaking 30,000 for the first time in its history on Tuesday.
Europe has given up earlier marginal gains to trade slightly negative a couple of hours into the trading day, while US futures are treading water ahead of the open on Wall Street. A lot of positive news is now priced in which will make the next couple of weeks interesting.
Thanksgiving holiday tomorrow means two things; firstly we basically get a three-day data dump today as well as the FOMC minutes so it’s going to be a lively session. Secondly, the rest of the week is basically a write-off for the US which should make for a chilled end to the week for the rest of us. That said, it is 2020.
The second reading of US third-quarter GDP is expected to be unchanged but, of all the releases, it’s arguably the least important given how out of date it already is. It would take some revision – and probably a positive one at that – to pique investors’ interests.
Jobless claims could be the big one after it reversed course last week. The increase was the first in almost two months as the recovery took hold. Given the rapid spread of COVID across various states and the restrictions that accompany it, the number is likely to start heading in the wrong direction once again, albeit to a far lesser degree than earlier this year. Another significant increase could take the shine off the rally at a time when it is already lacking momentum.
Income, spending, consumer spending and inflation data will come out in a flurry after the open and should provide some interesting insight into how households are coping at the most basic level. Senate Majority leader Mitch McConnell recently cited labour market figures as being a reason for not needing massive fiscal aid but the data may make for very different reading soon if Congress fails to act. The income and spending data has been volatile but disappointing numbers combined with weaker sentiment will be a concern.
The inflation data isn’t particularly interesting at this point. Not only is the Fed going to have no desire to tighten monetary policy any time soon, it’s likely to ease again in December as the economy suffers under the weight of the COVID restrictions. With Congress still MIA, the Fed is once again going to be left to do the heavy lifting.
The question is whether the temptation is going to be there to try their hand at yield curve control or if other measures, including more bond buying, are going to be preferred at this point. That’s something we could learn more about from the minutes later on in the day.
The economic calendar is heavily dominated by US releases, the only other noteworthy event being the spending review from UK Chancellor Rishi Sunak. The UK has already seen a sharp rise in unemployment since the pandemic hit and that’s expected to increase significantly higher, even with the extended furlough scheme in place.
The focus of the spending review is expected to be around employment as the UK seeks to bounce back strongly from the pandemic. Unfortunately, given the significant increase in government spending this year, there is already talk of how the country is going to pay for it, which will be another focus of the Chancellor’s speech.