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LIVE MARKETS Candy canes and coal: Wednesday's data

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CANDY CANES AND COAL: WEDNESDAY'S DATA (1135 EST/1635 GMT)

On the first day of the final month of 2021, investors were gifted a fruitcake of economic indicators chock full of the mildest upside/downside surprises.

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Private companies added 534,000 employees to their rosters in November, a mild deceleration from the previous month's pace. read more

Payrolls processor ADP's employment report (USADP=ECI) landed a tad above consensus and fairly close to the number of private sector job adds than analysts expect from the Labor Department's more comprehensive employment report, due Friday.

That report will be intensely scrutinized, with particularly sharp focus on the dastardly participation rate, which has remained stubbornly low even as the economy recovers from the pandemic crisis.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, warns low participation could prompt a chain reaction leading to the Fed hiking interest rates.

"Chair Powell yesterday expressed surprise at the continued flat trend in participation, which remains the biggest single risk to the benign medium-term inflation story," Shepherdson writes.

"If participation fails to rise, the huge labor demand/supply imbalance will persist, and the Fed likely will have to hike three or four times next year."

The graphic below shows how closely (or not) the ADP number tracks the Labor Department data:

ADP

Activity at U.S. factories (USPMI=ECI) accelerated slightly in November as input prices eased, new orders gathered steam and the employment situation posted improved marginally.

The Institute for Supply Management's (ISM) purchasing managers' index (PMI) delivered a print of 61.1, just a rounding error above the even 61 reading forecast by economists.

The 3.3 point drop in the 'prices paid' component is significant, even though its 82.4 level is still nosebleed-inducing. Still, it represents a welcome deceleration in input cost growth related to ongoing scarcity of materials due to the hobbled global supply chain.

A PMI number over 50 signifies an expansion of activity over the previous month.

"Manufacturing performed well for the 18th straight month, with demand and consumption registering month-over-month growth, in spite of continuing obstacles," notes Timothy Fiore, chair of ISM's manufacturing business survey committee.

And those obstacles indeed persist. Remarks from the survey's participants are lousy with phrases like "shortages continue to cause delays," and "input costs going up considerably," and "meeting customer demand is difficult due to shortages of raw materials and labor."

For its part, IHS Markit (USMPMF=ECI) reported its final take on November manufacturing PMI, coming in at 58.1, and marking a trivial 0.1 point drop from its October number.

ISM and Markit PMIs differ in the weight they give to their sub-indexes, such as new orders, employment, etc.

ISM PMI

Next, expenditures on construction projects (USTCNS=ECI) posted a meager rebound in October, gaining a weaker-than-expected 0.2% following the prior period's upwardly revised 0.1% decrease, according to the Commerce Department.

In a reversal of recent trends, a 1.8% increase in spending on public (government/tax funded) projects was responsible for the headline gain, while a 0.5% drop in residential expenditures helped keep the overall gain in check.

Stripping out the residential element, this data accounts for about 5% of U.S. GDP, notes Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

And in the face strong demand within the housing market, the October pullback signals "a loss of momentum even as low inventories remain supporting of building activity," Farooqi adds.

Construction spending

Finally, increasing interest rates helped prompt a 7.2% drop in demand for home loans last week.

Data from the Mortgage Bankers Association (MBA) showed the average 30-year fixed contract rate (USMG=ECI) gaining 7 basis points to 3.31%, which failed to impress homeowners looking to refinance existing loans (USMGR=ECI).

Refi applications, which account for the lion's share of the total, slid by 14.8%, handily offsetting a 5.1% uptick in demand for loans to purchase homes (USMGPI=ECI).

"Over the past three weeks, rates are up 15 basis points and refinance activity has declined over 18 percent," says Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

MBA

Wall Street was "see-ing" on the heels of Tuesday's "saw-ing," in a solid rebound from the previous session's steep sell-off.

All three major U.S. stock indexes were well into green territory, with economic proxies chips (.SOX), smallcaps (.RUT) and transports (.DJT) once again leading the parade.

(Stephen Culp)

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CAPITAL MARKETS AND A STRONG YEAR-END FOR BANKS (1040 EST/1540 GMT)

With capital market activity accelerating, Credit Suisse bank analyst Susan Katzke is anticipating a stronger than anticipated finish to the year for banks.

Despite month-end price declines Katzke cited supportive asset prices for equities in particular as well as sequentially higher trading volumes in both equities and fixed income with volatility increasing and an improved investment banking revenue generation pace.

But Katzke noted a moderation in investor risk appetite and said macro confidence, market dynamics and liquidity levels as well as investor conviction "will be critical to both the quarterly progression and the longer term sustainability of capital markets revenue growth."

Still the analyst laid out some promising investment banking numbers for the Q4 run rate so far vs Q4 2019 and observed that "capital markets activity — both investment banking and trading — continues to run well above the 4Q19 levels."

Total investment banking fees for Q4 2021 are running 52% higher than Q4 2019, and 15% higher than Q4 2020 although they are 4% lower than Q3 2021 so far. Included in these numbers is a whopping 109% increase in equity underwriting and a 202% increase in IPO fees, according to Katzke who cites Dealogic and Credit Suisse estimates.

While bank stocks seemed to be kicking off December in a good mood with the S&P bank index (.SPXBK) last more than 2% they have been pretty volatile recently.

On Tuesday the index closed down 2.3%, and at one point was as much as 8.3% below its Oct 25 intraday record high. While Wednesday's gain so far was on track to be its biggest since Sept 23. Friday's decline of 3.9% was its deepest one-day drop since June 17.

On Wednesday the biggest percentage gainer in the index was Fifth Third (FITB.O), up 3.6% followed by SVB Financial (SIVB.O), up 3.5%.

(Sinéad Carew)

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RETAIL TRADING: TOP FRENCH TRADED STOCKS (0949 ET/1449 GMT)

The French regulator of financial markets (AMF) has just published quite a lot of data on the retail boom the country experienced since the pandemic rocked financial markets in early 2020.

Main finding is that the trading appetite remains intact and comparable to what it was in March 2020.

Other findings include the fact that so called 'neo-brokers' have a younger client base inclined to trade complex instruments and more volatile stocks.

A particularly interesting table is this one showing which stocks (for which France's AMF is the competent authority) are the most traded:

AMF

As you can see, the usual blue chips suspects, like luxury giant LVMH or plane maker Airbus, are well represented but clients of neo-brokers are more inclined to trade smaller and more volatile stocks like French vaccine company Valneva.

Traditional banks are the likes of BNP Paribas or SocGen, online banks comprise Saxo Bank and IG Markets while neo-brokers count firms such as Activtrades and eToro in their ranks.

The AMF said its survey covers 218 million transactions executed between Q3 2018 and Q3 2021 by French and foreign retail investors on financial instruments for which it is the competent authority.

(Julien Ponthus)

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FOLLOW THE BOUNCING BALL (0832 ET/1332 GMT)

U.S. equity index futures are pointing to a higher open after a sharp sell-off for the second time in four sessions, as a drop of nearly 2% in the S&P 500 (.SPX) on Tuesday left the benchmark index at its lowest closing level since Oct 27.

Investors who were already jittery from concerns about the new COVID-19 variant Omicron that fueled Friday's sharp pullback were further unnerved by comments from U.S. Federal Reserve Chair Jerome Powell that indicated the central bank may tighten monetary policy faster than anticipated. read more

Monday's bounceback was seen as somewhat tepid by analysts, who will look for a stronger follow-through for today's bounce.

Futures slightly added to gains following the release of the ADP National Employment Report, which showed private payrolls increased by 534,000 jobs last month, above the 525,000 expectation. The data comes ahead of Friday's key payrolls report.

Data expected shortly after the opening bell includes the ISM Manufacturing PMI for November as well as October Construction Spending. The Fed's Beige Book of economic conditions is expected later in the day.

Below is your premarket snapshot:

Stocks poised to bounce at open

(Chuck Mikolajczak)

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FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0830 EST/1330 GMT - CLICK HERE: read more

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