Weekly Economic Cheat Sheet 11/16/15

Last Week

The major takeaway from the data last week was that a rate hike from December remains expected, but not certain. Internationally, European data was again lackluster, but with more QE on the way the data is being generally ignored. The October economic reports from China reinforced that growth there is stable, and China as a macro risk has been moved to the back burner near term.

The big report of the week in the US was Friday’s October Retail Sales report. It missed the headline expectation (0.1% vs. (E) 0.3%) but the details were a bit better than the headline implied. We watch the “control” retail sales, which is retail sales less autos, gasoline and building materials, and that metric rose 0.2%. Importantly, the September control retail sales was revised from –0.1% to 0.1%. Bottom line, the “spin” on retail sales last week between the horrid M and JWN earnings and the “miss” on retail sales was negative, but that’s a bit misleading. Consumer spending appears to be holding up well (the retail earnings issues are corporate issues, not macro issues) and nothing in those reports will make the Fed more dovish.

Staying in the US, jobless claims ticked a bit higher but still remain comfortably below 300k (276k) while November preliminary Consumer Confidence rose more than expected, jumping to 93.1, better than 92.0. That jump in confidence will be noted by the hawks at the December meeting, assuming it isn’t undone between now and the end of the month.

The bottom line with US data last week was that despite the negative tone, Fed Fund futures probability for a December rate hike remained at 70%, and nothing in last week’s data implies the US economy is slowing.

Turning to the international landscape, data from China was mixed. October imports and exports missed expectations, as did industrial production (down –5.8% vs. (E) -5.6%), but retail sales beat estimates (up 11% vs. (E) 10.8) and overall the data didn’t contain any major surprises. As we said Thursday, China is now on the back burner as a macro threat given the prospects of a hard landing economically have been reduced, and between now and the end of the year another surprise yuan devaluation is the only wild card to watch for.

This Week

This week will be another relatively quiet one, although the undisputed highlight will be the FOMC minutes on Wednesday afternoon.

We’ll do a more in-depth preview in tomorrow’s issue, but really what markets will be looking for is how much conviction the FOMC showed to hiking in 2015. A rate hike in December likely won’t be explicitly discussed in the minutes, but instead the important thing will be the length of discussion about a rate hike in 2015 and how many members voiced their support for a hike. Keep in mind this meeting came before the blow out jobs report, so if the minutes are a touch hawkish that will move markets.

Outside of the minutes, markets will get their first look at November manufacturing data via the Empire State Manufacturing Index (today) and the Philly Fed Manufacturing Index. Both of these indices were solidly negative in October but showed signs of stabilization (they weren’t as bad as September), so any continuation of that trend will be a mild positive.

Beyond that November data, Housing Starts come Wednesday, and they will be watched a bit more closely than the last few months (remember the housing numbers from September were a bit disappointing, and an ongoing housing recovery is an important tailwind on the US economy).

Finally, October Industrial Production (tomorrow) and Weekly Jobless Claims (Thursday) will also be important indicators to watch (every major economic indicator is important now given the possibility of a December hike).

Bottom line, the minutes are the key release this week and unless the November data (Empire and Philly) is horrid, it shouldn’t move markets too much.