Last night it was taper on so far as markets are concerned. The data flow was mixed but politics around a debt-ceiling agreement was favourable.
Positive data included the ADP employment report which beat expectations of 185k for November:
Private sector employment increased by 215,000 jobs from October to November, according to the November ADP National Employment Report®. … The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis….Mark Zandi, chief economist of Moody’s Analytics, said, “The job market remained surprisingly resilient to the government shutdown and brinkmanship over the treasury debt limit. Employers across all industries and company sizes looked through the political battle in Washington. If anything, job growth appears to be picking up.”
The ADP does not have a good record of foreshadowing the official BLS but it does work quite well in terms of trend.
Also good was the trade balance:
[T]otal October exports of $192.7 billion and imports of $233.3 billion resulted in a goods and services deficit of $40.6 billion, down from $43.0 billion in September, revised. October exports were $3.4 billion more than September exports of $189.3 billion. October imports were $1.0 billion more than September imports of $232.3 billion.
On the mixed data front, new home sales in October beat the 425k expected but previous months missed big on revisions:
“Sales of new single-family houses in October 2013 were at a seasonally adjusted annual rate of 444,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 25.4 percent above the revised September rate of 354,000 and is 21.6 percent above the October 2012 estimate of 365,000.”
That’s very strong for the shutdown month though we need a note of caution for this data, which does appear to be shutdown affected with big falls and snap backs.
Still on housing and moving to poor data, the MBA weekly mortgage activity index crashed again:
Mortgage applications decreased 12.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 29, 2013. This week’s results include an adjustment for the Thanksgiving holiday…The Refinance Index decreased 18 percent from the previous week and is at its lowest level since the week ending September 6, 2013. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier…The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.51 percent from 4.48 percent, with points increasing to 0.38 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
That’s some nasty falls, though Calculated Risk reckons small lenders, which are outside of the index, are capturing market share so it may be underestimating activity.
Also weak was the ISM Services PMI:
“The NMI® registered 53.9 percent in November, 1.5 percentage points lower than October’s reading of 55.4 percent. This indicates continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 55.5 percent, which is 4.2 percentage points lower than the 59.7 percent reported in October, reflecting growth for the 52nd consecutive month, but at a slower rate. The New Orders Index decreased slightly by 0.4 percentage point to 56.4 percent, and the Employment Index decreased 3.7 percentage points to 52.5 percent, indicating growth in employment for the 16th consecutive month, but at a slower rate.
Probably the most important development of the night was that it looks at this stage like a second shutdown will be avoided:
U.S. budget negotiators are near a deal in which Democrats would accept fresh revenue from user fees and Republicans would agree to more federal spending, steps that could avoid another government shutdown next year.
The two leaders of the 29-member bipartisan panel aiming to reach an agreement on budget savings to replace some automatic spending cuts set to start in January are hatching a narrow deal in which both parties would have to compromise.
Instead of ending some corporate tax breaks, as Democrats prefer, revenue would come from raising user fees, including for airline passengers. Republicans would have to accept higher spending levels than scheduled under current law, according to congressional aides.
Negotiations are continuing and “there are still issues to be resolved,” Senate Budget Committee Chairman Patty Murray, aWashington Democrat, said today.
The two parties are “down to the last few items” and are being “careful to say they don’t have a deal,” Representative Tom Cole of Oklahoma, a member of the conference panel, said yesterday. “It’s not the grand bargain but it’s a workable deal.”
The outcome of all of this was the S&P down over half a percent. Long bonds sold hard with 30 year yields threatening a renewed breakout at 3.9%, up almost 2% on the night.
Other markets were less clear cut. The US dollar was flat, gold rallied 2% against the trend, but the Aussie was caned and fell below 90 cent briefly before recovering slightly.
I reckon a downside test of this year’s lows looms.
