Daily Commentary

MarketMinder’s View: The headline personal consumption expenditures (PCE) price index—the Fed’s targeted inflation gauge—rose 2.4% y/y in November, up from October’s 2.3% but a hair slower than analysts expected. The core gauge, which excludes volatile food and energy costs, held steady at 2.8% y/y. On a monthly basis, headline PCE slowed to 0.1% m/m, showing the year-over-year acceleration was about base effects—not rekindled price pressures. Separately, the report showed inflation-adjusted consumer spending rose 0.3% m/m, up from October’s 0.1%, while real disposable income growth slowed from October’s 0.5% m/m to 0.2%. Overall, it is a steady-as-she-goes kind of report, showing household finances continuing to gradually overcome inflation’s prior surge and enable spending. Outside the data, we have a few criticisms of the coverage here. One, it (and most other coverage we saw) jumps straight into Fed policy speculation, which is always the wrong move as there is just no way to know how a cabal of humans will interpret incoming data. Fed moves aren’t predictable market functions. Two, it hints at weakening consumer demand being a headwind in 2025, based on services’ contribution to spending relative to discretionary goods. However, this is a long-running trend that, per our analysis, stems more from COVID lockdowns pulling forward goods demand and leaving a giant pothole in their wake. Society seems to be working through the aftermath of this dislocation, still, hence services has done the heavy lifting for a couple years now. Either way, though, weakness in the goods portion of the economy is very well known, not sneaking up on stocks.

MarketMinder’s View: UK retail sales volumes increased 0.2% m/m in November, missing analysts’ 0.5% estimate. As this piece covers, the holiday promotions in this period (early Black Friday deals and Cyber Monday) didn’t provide the tailwind many expected—particularly for clothes. “Clothing retail volumes fell by [-]2.6% in November to their lowest level since January 2022, with businesses reporting that economic factors were affecting sales. Shops in the non-food category – a combination of department stores, clothing, household and other non-food retailers – rose by 0.2%. Food stores sales volumes increased for the first time in three months, up 0.5%, with the strongest growth in supermarkets, the ONS said.” Now, we agree there are some signs of weakness here, but it is important to note that Black Friday is relatively new in the UK and there could be seasonal adjustment issues. On an unadjusted basis, month-over-month growth rates were gangbusters across the board. At the same time, however, they are down year-over-year and below November 2022. So yes, consumers may be feeling more of a pinch this holiday season. However, we caution against reading much into this. In terms of the economic significance, retail sales exclude most services—the bulk of all consumer spending in developed economies—so it is premature to pencil in any broader economic implications here. In a year where UK retail sales have bounced around tied to numerous factors, November’s reading looks like another data point in a well-known trend.

MarketMinder’s View: As always, we prefer no party nor any politician and assess developments for their potential economic and market implications only. The development, in this case, is President-elect Trump alluding to using tariffs on the EU to cajole them into buying more US oil and gas. This is his tried-and-true tactic of using tariffs as leverage to negotiate something else. But in this case, the something else may prove counterproductive. How so? “Forcing someone in Europe to buy a barrel from America that it might have from Nigeria or Saudi Arabia just redirects that trade. Those barrels would then find a different customer—possibly one who originally would have bought the diverted U.S. barrel. The buyer could even be American. And, since the decision about what kind of oil (light or heavy, sweet or sour) and where to buy it has to do with shipping costs and what sort of crude a refinery is best-suited to process, the end result could be slightly more costly gasoline and diesel, even if oil prices are unchanged. The U.S. is, for this reason, still a big importer of crude oil. Gulf Coast refineries optimized for the years when Venezuela was a reliable producer import similar heavy, sour crude barrels even as U.S. light, sweet barrels and refined products flow in the other direction.” The global natural gas trade is similarly global and fungible. Look, we don’t think any of this is bearish or an economic negative on its face. But markets work best when goods and services flow freely, and that includes energy products.