Fed Not Confident Enough About Downward Inflation Path, Needs More Evidence

Barry Adams
21 Nov, 2023
New York City

Stock futures edged lower, and investors focused on retailers after the latest batch of earnings and reviewed the November meeting minutes released by the Federal Reserve. 

Market indexes were little changed and lacked direction after the release of the minutes of the meeting ending on November 1.

Committee participants stressed that the current inflation "remained unacceptably high" and that further evidence would be required for them to be confident that the inflation was on a path to the 2% objective of the central bank.

A few participants noted that nominal wages are still rising at levels above the assessed levels, consistent with the sustained level of 2% inflation objective.

Investors looking for clues for the Federal Reserve to lower rates were disappointed, as most participants supported the continuation of restrictive policy and said that "the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation."

Most investors are anticipating the Federal Reserve holding rates for the third time in a row after the December meeting, providing a stable rate outlook all the way to the end of January 2024, when policymakers are scheduled to gather again.

The S&P 500 index and the Nasdaq advanced for five days in a row after two popular benchmark indexes advanced in Monday's trading.

Investors reacted to earnings from Zoom Video, Lowe's Companies, Best Buy, Abercrombie & Fitch, Dick's Sporting Goods, Kohl's, and Burlington Stores.

Later in the day, investors are awaiting results from Nvidia, Dell, and HP.

 

U.S. Existing Home Sales Dropped to a Thirteen-Year Low 

U.S. existing home sales in October declined 4.1% from the previous month to a seasonally adjusted annualized rate of 3.79 million units, the National Association of Realtors reported Tuesday.

The sales dropped to the lowest level since August 2010 and dropped 14.6% from 44 million a year ago.

The lack of homes available for sale and record high mortgage rates in nearly two decades continue to weigh on the market.

Total housing inventory at the end of October was 1.15 million units, up 1.8% from September but down 5.7% from 1.22 million a year ago.

The median existing-home price for all housing types in October was $391,800, an increase of 3.4% from $378,800 a year ago, and all four regions registered price increases.

Single-family home sales declined to a seasonally adjusted annual rate of 3.38 million in October, down 4.2% from 3.53 million in September and 14.6% from the previous year.

The median existing single-family home price was $396,100 in October, up 3.0% from October 2022.

 

U.S. Indexes and Yields

The S&P 500 index edged down 0.2% to 4,537.41, and the Nasdaq Composite decreased 0.7% to 14,184.93.

The yield on 2-year Treasury notes increased to 4.91%, 10-year Treasury notes inched higher to 4.42%, and 30-year Treasury bonds edged higher to 4.56%.

Crude oil decreased $0.29 to $77.53 a barrel, and natural gas prices fell 2 cent to $2.86 a thermal unit.

Gold increased $23.54 to $2,000.54 an ounce after the U.S. dollar eased on the expectations that the Federal Reserve will continue hold rates at its next meeting in December and may  begin to lay ground work to lower rates in early 2024. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.34.

 

U.S. Stock Movers

Lowe's Companies dropped 5.3% to $193.59 after the home improvement retailer lowered its full-year sales and earnings outlook.

Net sales in the third quarter declined to $20.5 billion from $23.5 billion, net income soared to $1.8 billion from $154 million, and diluted earnings per share rose to $3.06 from 25 cents a year ago.

Earnings in the prior year included an impairment charge of $2.1 billion after the company sold its Canadian retail business.

During the quarter, the company repurchased approximately 7.3 million shares for $1.6 billion and paid $642 million in dividends.

Comparable sales in the quarter declined 7.4% after the pandemic-fueled demand for home improvement projects moderated.

The company lowered its full-year 52-week sales estimate to $86 billion from the previous estimate range of $87 billion to $89 billion.

Comparable sales are expected to decline 5% from the previously estimated range of 2% to 4%.

The company also lowered its adjusted diluted earnings per share estimate to $13.0 from the previous estimate between $13.20 and $13.60.

 

European Markets Hovered Near Flatline

European markets struggled to advance, and the euro hovered near the three-month high.

Benchmark indexes in Frankfurt, Paris, and London traded sideways ahead of comments from several European Central Bank officials and the release of minutes of the November meeting by the U.S. Federal Reserve.

Positive market sentiment over the last two weeks drove market indexes higher after interest rate hike worries receded, and the stable interest rate outlook also supported market enthusiasm.

Investors also welcomed the increase in vehicle sales in October, suggesting resilient consumer spending.

 

EU Passenger Vehicle Sales Expanded Fifteenth Consecutive Month

Vehicle sales in the European Union continued to expand as buyers returned to purchase electric vehicles and producers faced a few supply chain issues, the European Automobile Manufacturers Association reported today.

New vehicle sales rose for the fifteenth month in a row.

Passenger vehicle sales in October jumped 14.6% from a year ago to 855,484 units, and the market share of fully electric vehicles increased to 14.2% from 12% in the previous month.

Battery-powered electric vehicle sales for the ten months to October jumped to 14%, surpassing diesel vehicles for the first time.

Three of the four largest vehicle markets in the European Union posted double-digit gains.

Vehicle registration in France rose 21.9%, Italy gained 20%, and Spain advanced 18.1%.

 

UK Public Sector Borrowing Expands

The UK's public sector net borrowing, excluding banks, increased to £14.9 billion, compared to £10.5 billion a year ago, the Office for National Statistics reported Tuesday.

The net borrowing in October was the second largest in the month since record-keeping began in 1993.

The UK government's total spending increased 7.7% to £99.8 because higher family benefits offset the ending of energy subsidies.

In addition, the government's revenue increased by 3.3% to £85.2 billion, driven by a £2.7 billion increase in central government tax revenue.

Despite the increase in net borrowings in the last three months in a row, borrowing between April and October totaled £98.3 billion, £17 billion less than estimated by the Office for Budget Responsibility.

 

Europe Indexes and Yields

The DAX index increased 0.1% to 15,900.53, the CAC-40 index fell 0.3% to 7,229.45, and the FTSE 100 index fell 0.2% to 7,481.99.

The yield on 10-year German bonds increased to 2.592%; French bonds traded lower to 3.152%; the UK gilts increased to 4.11%; and Italian bonds inched lower to 4.32%.

The euro continued to rebound and approached the high last seen in late August after the U.S. rate hike worries receded.

The euro rebounded to $1.094, the British pound at $1.253, and the U.S. dollar at 88.38 Swiss cents.

Brent crude decreased $0.42 to $81.89 a barrel, and the Dutch TTF natural gas edged lower by €2.02 to €43.41 per MWh.

 

Europe Stock Movers

Sonova Holding AG increased 7.5% to CHF 251.40 despite the Swiss hearing aid maker lowering its annual core profit forecast.

CRH PLC increased 1.8% to 4,827.0 pence after the building materials solution provider agreed to acquire a cement plant and 20 ready concrete mix plants in Texas from Martin Marietta Materials, Inc. for $2.1 billion.

International Consolidated Airlines Group decreased 2.4% to 159.85 pence, despite the parent company of British Air reaffirming its annual outlook.

Cranswick plc increased 1.5% to 3,700.0 pence after the meat producer estimated its annual profit near the upper end of the estimated range by analysts.

Rheinmetall AG jumped 4% to €292.80 after the German defense contractor released its mid-term strategy.

Banca Monte dei Paschi di Siena SpA dropped 8.5% to €2.81 after the Italian government sold its 25% stake in the bailed-out bank.