The Dow is up 100. Why? In brief we have had 3 days of news showing growth without inflation. Investors like that. Does this mean that everything is peachy-keen with the economy? Of course not. It means that things are looking good this week. The Fed's main enemy continues to be inflation. If you read on you will see that Europe is sharing that opinion.
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my daily market commentary. This is intended for individuals looking to see where interest rates are going, mortgage professionals and Realtors.
There were a lot of different economic releases on Thursday preparing the way for Friday's BLS Employment Situation Report. Initial Jobless Claims were 320,000. Considering the effects of the hurricanes, the jobs market must be rated as strong. Personal Income was +0.4% for October. Salaries & Wages were +0.6%. Personal Spending was +0.2%. The spending number was weak due to decreased auto sales. Personal Consumption Expenses were +0.5%. The savings rate well - maybe they need to change the name - was -0.7% vs. -0.8% the previous month. The U.S. continues to rely on foreign capital. Note that there is a slight disconnect here. The savings rate does not include: funds transferred from your HELOC to your checking account, income from investments or the increased equity in our homes. Folks may be spending because they have more wealth without any increase in income. Individuals are using HELOC's and profits from investments to supplement their wages. Funds used to make future payments on HELOC's will reduce future spending and GDP. The U.S. Treasury Department maintains a significant dependence of foreign capital.
The Fed will hike 25 basis points on 12/12. Today the ECB (European Central Bank) moved its benchmark rate from 2.0% to 2.25% showing a parallel with the Fed. The Euro is down 13% vs. the dollar this year but, taking a page from Greenspan's playbook, these folks are thinking ahead and fighting inflation long before it can begin. Dismal GDP and unemployment rates are starting to get better in Europe and this hike represents somewhat of a bold move.
Expectation for Friday's BLS Employment Situation Report is +225,000 jobs. Treasuries do not seem to be responding to the Employment Report the way they once did. Investors no longer see a strong correlation between large numbers of new jobs and inflation. An outsized number (something above +350,000) might change their attitude.