Happy Thanksgiving

So the saying goes: When the US economy sneezes, the world catches a cold. Likewise, when Wall Street takes a day off, so do most developed economy markets. Without the US leadership or money, the traders have an excuse to start the festive season early. We had the big data release on Wednesday of a series of the latest data points on the US economy, which overall was a bit of a non-event. I would sum up as most of it came in and around market expectations. The 0.27% increase in the core PCE deflator was the largest since March, pushing the inflation rate to 2.8% from 2.7% in September—petty much in line with expectations, which could be considered a little disappointing.

Durable Goods orders fell slightly less than expected, with net revisions positive. Initial jobless claims fell to 213K, slightly lower than in the summer. However, according to Pantheon Economics, they are still high enough to sustain the rising trend in unemployment, given the pronounced weakness of hiring.   The US GDP estimate was unchanged quarter on quarter, as expected. So, it is a slightly mixed bag, but at the end of the day, not much will change the view that the Fed will cut interest rates by 25 basis at their December meeting. The minutes of the Fed meeting released on Wednesday would suggest some uncertainty by its members about the pace at which further cuts should take place next year.

We will receive the semi-annual Financial Stability Report at 10:30 this morning, followed by a press conference. The Report sets out our Financial Policy Committee’s view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it. The general consensus seems to be that the budget has done nothing to improve the UK’s financial stability. June report headlines were: Overall, UK households and businesses have remained resilient to the impact of higher interest rates. Let’s see if they remain resilient to higher tax rates.

As US stock markets rally to new highs, it’s interesting to note that the AAII retail investor survey, which indicated an uber-bullish sentiment a few weeks ago, is tempering that view. Bullish sentiment is now in line with historical averages; those who think the market will be lower in 6 months have gone from a low of 27% to almost 40%, well above the historical average. Something inside me feels early to mid-December may be a tad tricky. We shall see.