By Carlos Guillen
Equity markets are having another down trading session, making this the fifth day in which the Dow Jones Industrial Average steps lower. Apparently, the better than expected economic data points are pushing stocks lower, as the belief of tapering sooner rather than later is making rounds again.
Certainly quite encouraging this morning was that the downtrend in the number of people filing for unemployment benefits not only continued but also accelerated to the downside; however, last week's holiday added some uncertainty to the data. According to the Department of Labor, initial claims during the week ended November 30 totaled 298,000, decreasing from the 321,000 revised figure reported for the prior week and landing below the Street's estimate of 330,000, representing the sixth week below the 350,000 level that economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month. Moreover, the initial claims' four-week moving average was 322,250, decreasing from the prior week's average of 333,000, representing the fifth week of declines. Despite the favorable downtrend in the data, one should consider the increased noise resulting from off days. In fact, according to the Labor Department, last week included the Thanksgiving Day holiday, which made adjusting the data for seasonal swings more difficult.
Clearly, the most surprising economic data presented today was that U.S. output improved better than expected in the third quarter. According to the Bureau of Economic Analysis, real gross domestic product (NYSEMKT:GDP) during the third quarter of 2013 increased quarter-over-quarter by 3.6 percent (annualized), better than the Street's consensus estimate calling for a 3.0 percent quarter-over-quarter rise, increasing at a faster rate than the 2.5 percent achieved in the second quarter of this year. Additionally, this GDP result demonstrated the tenth consecutive quarter of economic growth and represented an improvement over the first estimate of 2.8 percent. It was quite encouraging to see that the four main categories of GDP contributed to overall growth; those being consumption, investments, government, and net-exports. In fact, the last time these four components of GDP contribute to growth in the same quarter was back in the second quarter of 2007. The better than expected GDP result was mostly as a result of inventories, which contributed 1.68 percentage points. On a bit of a negative note, consumption (more precisely Personal Consumption Expenditures) contributed less for a second consecutive quarter, contributing to GDP 1.54 percentage points in the first quarter, 1.24 percentage points in the second quarter, and 0.96 percentage points in the third quarter (revised down from 1.04 pps).
On the inflation side, prices for GDP increased by 2.0 percent (annualized, revised up from 1.9%), while economists' average forecast called for a 1.9 percent rise. The higher than expected rise in prices may also serve to motivate the Fed to start tapering when the FOMC meets this month, and this may not be great news for short term traders.
Perhaps a bit mixed today was data that showed a better than expected decline in new orders. According to the U.S. Census Bureau, new orders for manufactured goods during October decreased month-over-month by 0.9 percent to $486.9 billion, better than the Street's consensus estimate calling for a 1.0 percent month-over-month decline. Concurrently, new orders for consumer goods declined by 0.1 percent, after decreasing by 0.2 percent in the prior month, and non-defense capital goods (excluding aircraft) declined by 0.6 percent, after decreasing by 1.2 percent in the prior month. These orders are considered a proxy for future business investment in items such as computers, engines and communications gear, so the most recent decline does not bode well for gross domestic product growth moving forward.
Quite clearly, the Dow continues to slide further after better than expected initial claims, GDP, and factory orders are serving to increase the belief that the Fed will begin winding down its rather loose monetary policy sooner than expected. While the Dow has experienced some gyrations this morning, its level is back to heading for the lows of the day.
China Blasts Bitcoin
By David Urani
Over in the world of Bitcoin, the Chinese laid the smack-down on the digital currency. The People's Bank of China, their central bank, officially ruled that Bitcion is not a proper currency and it has been banned for any use in financial institutions. That caused Bitcoin's value to fall more than 30% from above $1,200 to below $900. However, the price has rebounded since then back to around $1,100. As a reminder gold is currently $1,231; if you ask me I'd take the gold.
Nevertheless, perhaps the very idea that China felt the need to officially ban Bitcoin only proves that it's something to be taken seriously now, rather than some gimmick. Separately, Bank of America/Merrill Lynch gave Bitcoin more legitimacy by actually launching institutional coverage on it. They likened it to a money transfer enterprise, such as Western Union and Moneygram, and even suggested it could overtake those companies' market share. In the end they assigned a value of $1,300 to Bitcoin.
We're not taking sides on this one right now, it's far too speculative and volatile, but it's certainly becoming an increasingly intriguing thing to watch. It's still very sparsely used; http://coinmap.org/ shows 1,579 places in the world registered as accepting Bitcoin as payment. But that is up from 1,409 places when I checked on Tuesday.