December 20 – Will Wall Street get its Santa Claus rally this year? And if it does, from what level will the rally occur? Those are questions being pondered this morning as stock futures returned to their nervous ways overnight, coming under pressure once again ahead of this morning’s PCE inflation data, although that data managed to spur some buying once again. This is quadruple witching day on Wall Street – the day on which stock index futures, stock index options, stock options and single stock futures expire simultaneously. That’s not necessarily bullish or bearish, but it does tend to create some erratic behavior at times. The VIX is trading near 23 at this hour, after trading above 26 overnight, while the dollar index traded near 108.1, after hitting fresh two-year highs above 108.5 earlier in the session. Yields on 10-year Treasuries are trading near 4.50%, falling after this morning’s data was released, while yields on 2-year Treasuries are trading near 4.26%. Crude oil prices are modestly lower this morning, while the grain and oilseed markets were generally firmer overnight.
Personal income rose by 0.3% month-on-month in November, falling short of analyst expectations of 0.4%, and falling short of an upwardly revised 0.7% growth rate in October. Personal consumption expenditures rose by 0.4% month-on-month in November, again falling short of analyst expectations of 0.5%, but above a downwardly revised 0.3% for October. The headline PCE price index rose by just 0.1% month-on-month in November, falling short of expectations that it would rise by 0.2%, similar to the previous month’s rise. The headline PCE price index rose 2.4% year-on-year in November, down from expectations of 2.5%, but up from 2.3% the previous month. The core PCE price index that excludes the food and energy sectors, and which is a preferred indicator of the Federal Reserve, rose 0.1% month-on-month in November, down from expectations that it would rise by 0.2%, and down from 0.3% the previous month. The core PCE price index rose 2.8% year-on-year in November, down from expectations of 2.9%, but unchanged from the 2.8% posted the previous month. The bottom line is that inflation remains sticky above the Fed’s 2% mandate. You can find something for both the hawks and the doves in this report. Wall Street’s bias seems to match the bias seen by the Fed that will want to look at these numbers through the lens of a dove, which is how the market therefore reacted.
The U.S. government will go into a partial shutdown at midnight tonight if Congress fails to pass a funding measure that is signed by President Biden before that time. A deal between Democratic and Republican leaders had been worked out earlier this week that would have funded the government through March 14, but it fell apart after President-Elect Trump criticized the excessive spending buried within the 1,500+ page document. The massive bill included favorite projects for a number of legislators, including funding for a new stadium for the NFL’s Washington Commanders, pay raises for Congress, language allowing members of Congress to not participate in what has become known as Obamacare health insurance, and a plethora of other things. It’s possible that we’ll see a bill emerge today to fund the government into next week to give Congress more time to pass a more significant funding bill, or possibly it funds the government until the new Congress takes over on January 3rd. House Speaker Mike Johnson told reporters this morning that he has a plan, just before entering his office to discuss that plan with other members of Congress. Wall Street tends to not worry too much about short-term shutdowns, since all federal workers tend to eventually get paid anyway, doing little to negatively impact the economy unless its longer-term. However, the failure to reach a deal leaves the farm bill in limbo, along with overall liquid biofuel policy.
The U.S. debt clock stands at $36.2 trillion this morning, with the annual cost of servicing that debt at $1.022 trillion. The largest portion of that debt is held by the U.S. government and by the Federal Reserve, but foreign entities held $8.6 trillion of it as of October – the latest date for which data is available. The biggest foreign holder of U.S. debt is Japan at $1.103 trillion as of October, down 1.84% on the month, after falling 0.52% the previous month. Japanese investors are bringing their money home as interest rates their rise following years of negative rates. The second largest holder of U.S. debt certificates is China at $760 billion, down 1.54% on the month and the lowest level since 2009 when its holdings of U.S. debt was nearly doubled at more than $1.4 trillion.
Soyoil prices were again under modest pressure in the absence of any legislation or government guidance on subsidies for the green diesels or sustainable aviation fuel production. The grain and oilseed sector otherwise firmed overnight with profit taking and end user buying at these low prices as traders square positions before taking some holiday time off with family. Trade is expected to thin significantly next week, which often times leads to prices drifting, but it can sometimes lead to some erratic trade. The markets will be open a partial day on Tuesday, and they will be closed all day on Wednesday next week for the Christmas holiday.
