Markets React To Perceived Consumer Spending Dip In Different Ways

Regardless of what consumer-spending activities were on a non-granular basis, the fact is that when two volatile components are taken out, in fact spending was very robust.

The raw data tells us that spending rose only 0.1%, a decline from previous months and the lowest since June. However, part of the decline is distinctly attributable to sharp declines in energy costs, rather than discretionary spending. October year-over-year spending growth ex-gasoline is 4.1%, the bottom end of a range that, since February, has bounced between 4% and 5% expansion of spending.

That is not to say there is not a key discretionary aspect to the spending slump. But, the key element is a slowdown in auto purchases.

The auto sector stayed solid even with a slight decline in sales. Private industry reports showed that car and truck purchases totaled 1.5 million in October, a 14% increase year over year but a decline compared to September, according to Autodata Corp.

General industry consensus projects overall auto sales of 17.4 million for the entire year, which will beat the record of 17.35 million attained in 2001. Vis-à-vis October’s dip… even in a record year, not every month will be a record month, somewhat in the way that a great baseball hitter doesn’t get a hit every time at bat.

Meanwhile, consumer sentiment continues to stay in lofty space orbit. The Thomson Reuters/University of Michigan's preliminary November reading on the index was 93.1, higher than October’s reading of 90. The figure was also higher than expectations of 91.5 by Thomson Reuters.

Cutting off at the pass worries about the auto industry, buying plans for large discretionary purchases improved, especially vehicles, the report said.

All of the above caused the dollar to regain strength to the upside against the euro. The rise naturally affected other markets.

The afternoon settlement of crude oil saw West Texas Intermediate down 2.4% although it has recovered in after-hours trading. Brent North Sea crude was down about 1.00% at 4 o’clock New York time.

The entire precious-metals complex is down on the day. Gold, despite some positive action in regular trading succumbed to dollar vigor and fell about 0.30%. The biggest percentage loser on the day was – if you haven’t guessed – palladium, which is down over 4.00%. Palladium is hurtling toward the $500 per ounce mark. Exactly a month ago, palladium was trading at $700 per ounce.

Equities wanted to have their cake and eat it too. Pick a reason why stocks fell across the world today.

Oil prices weighed. Sluggish international trade weighed. U.S. data weighed. The fear of a Fed rate hike weighed. China weighed.

We’re voting for oil as the main culprit here. There are reports that there are now over 3 billion barrels of oil in storage around the world. That’s about a month’s worth of the black gold. What’s crazier is that the outlandish number could easily double if there were even more storage capacity.

Wishing you as always, good trading,