Although the markets were in negative territory for most of the session, they certainly aren’t showing the same level of extreme volatility we’ve come to know over the past few weeks. The primary drag across all the indices is the price of crude oil dropping below $80 per barrel for the first time since mid-2012. Energy prices are plummeting around the world, and oil giant Petrobras in Brazil was hit with a double-whammy today as the country re-elected President Dilma Rousseff under whose leadership the Brazilian economy took a drastic turn for the worse with high inflation and low corporate profits. Additionally, The European Central Bank (ECB) examined how 130 European banks would perform under various adverse scenarios, and 25 of them failed – 9 of them were based in Italy including the Monte dei Paschi di Siena- the world’s oldest bank. Domestically, we are getting further signs of economic improvement and they would have had a more meaningful impact had the price of oil not slipped so drastically during the session.

Firstly, Markit noted a slight slowdown in the composite index for the Services Purchasing Managers' Index (PMI) over the previous month. The preliminary reading for October came in at 57.3 which is a new 6-month low, and below the final reading in September of 58.9. The mid-month reading in September was at 58.5 and the index finished out the month of August at 59.5. Below is a chart that shows the progression downward in the service sector over the last year. Details in Markit’s report showed a slowdown in new business growth to a 3-month low, and another downtick in business confidence to roughly a 2-year low. However there were several positives in the report, including job creating which remains at a 3-month high. The price reading showed that input prices were down while output prices are beginning to show some traction. Unfinished work and backlog accumulation were both solid in October, so far.  Any reading above 50 is consistent with growth, but this report suggests some deceleration in the US economy in the third quarter, which will likely pull down forecasts for the ISM non-manufacturing survey results next week.

On the housing front, there was a slight improvement in pending home sales to complement the new home sales report from last week. Low mortgage rates and improvement in the jobs market helped to boost pending home sales by 0.3% in September. It’s a small gain, but it hints at growth ahead for existing home sales, which have been up-and-down all year. Pending home sales represent contract signings, and were led by a 1.4% rise of sales in the South. Right behind the South, at +1.2%, is the Northeast and the Midwest and West both showed declines at -1.2% and -0.8% respectively. A positive note in the report is that the year-over-year trend which is back on the positive side at +1.0% - a modest move in the right direction. Another positive for home sales is the softening of prices, which will be evident in the Case-Shiller report which will be posted tomorrow morning.

Despite the decline in oil, Texas factory orders increased again in October according to the Dallas Fed’s Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, declined from 17.6 to 13.7, indicating that output grew, but at a slightly slower pace than in September. Other measures from the survey indicated growth in October, namely in new orders, which rose from 7.5 to 14.2, reaching a six-month high. Capacity utilization edged down to 18.1 and shipments declined to 12.8. However, more than a quarter of the firms in the survey noted increases in these measures over the levels in September. Broader market conditions continue to be optimistic and the outlook for business continues to improve. The general business activity index held steady at a strong reading of 10.5 and the corporate outlook index jumped more than 12 points to 18.2 – its highest level in six months. Labor market indicators note improvement in employment growth at the number of hours worked during the week. The October employment index posted its 5^th robust reading in a row, holding steady at 10.2. Of the firms surveyed, 19% reported net hiring, compared with just 9% reporting net layoffs. Overall, the Dallas Fed survey appears to be more optimistic than other recent regional surveys. It also confirms that there is growth in manufacturing on a national level, however the pace remains relatively slow.