Stocks closed lower yesterday to start the month.

While the week after Thanksgiving can be mixed, December is typically an up month. Especially with it being a post-election year, which gives December a 77.8% likelihood of closing higher. That bodes well for a strong finish to the year. Plus, Q4 is the best quarter for stocks after all.

Yesterday's PMI Manufacturing Index came in at 52.2 vs. last month's 52.5 and views for 51.9.

And the ISM Manufacturing Index came in at 48.2 vs. last month's 48.7 and estimates for 49.0.

We expected to get Construction Spending data yesterday, but that report was delayed as the after-effects of the government shutdown linger for data gathering and report production.

Today, the only report on the docket is Motor Vehicle Sales.

In other news, it was reported that Japanese government bond yields soared yet again. In fact, yields on the 40-year bond rose to all-time highs (as much as 3.77%), while the 30-year hit multi-decade highs at 3.30%, and the 10-year rose to 1.81%, its highest level since 2008.

With the Bank of Japan moving away from its easy monetary policy (they are expected to increase rates later this month, which would be their second rate increase (the first came in January ?25) in 17 years), coupled with a weak Yen, big stimulus measures raising inflation concerns, and a soaring debt-to-GDP ratio, bonds are down, and yields are up.

This doesn't directly affect the U.S. But since Japan is the largest holder of U.S. Treasuries, as yields rise in Japan, and yields are expected to continue to fall in the U.S., that narrows the spread between the two, making the U.S. less attractive.

Although, to be fair, the 10-year on the U.S. is at roughly 4%, still well above Japan's 1.81%. But the interest rate developments in Japan are worth watching given the historic spikes in yields.

Separately, it was reported that President Trump has selected his replacement for Fed Chairman Jerome Powell, when his term is up in May '26. While the President hasn't officially announced who it'll be, it's believed that Kevin Hassett, former chair of the Council of Economic Advisers and current National Economic Council director, is the frontrunner. The official nomination, whoever it'll be, is expected to come by year's end.

While there's plenty of economic reports on deck for the rest of this week, the main event that investors are waiting for is next week's Fed Announcement on Wednesday, 12/10.

With inflation becoming less of a risk (last week's Producer Price Index showed inflation easing with the core rate (ex-food & energy) coming in at 2.6% y/y, which is down from the previous report's 2.8%), and the labor market becoming the larger focus, there's high expectation for the Fed to cut rates for the third time next week. In fact, the CME's FedWatch tool puts the odds of a 25 basis point rate cut at 87.6%.

But everybody will also want to hear what the forecast is for further rate cuts next year.

In the meantime, the market has performed well and the economy has been resilient. And there are plenty of tailwinds for both for the rest of the year.

But interest rates are an important part of the economic outlook. So next week's announcement on rates will be a factor.

See you tomorrow,