March CPI and Retail Sales With Plenty of Fed Speak

It’s another full week of Fed speakers after an informative FOMC minutes from the March meeting and Fed speeches last week. A total of eleven Fed officials will offer their views with the highlight being Fed Chair Powell tomorrow at the Economic Club of Washington. That speech will have the added benefit of coming after the March CPI release and will give the Chair another opportunity to deflect any concern over the expected pick-up in inflation as a temporary phenomenon and not a demand-led push to more durable price increases.  The highlight of the week’s economic releases will be the March CPI numbers.  CPI (YoY) is expected to jump to 2.5% after last month’s 1.7% . That’s your base effect in action. Core CPI (YoY) is expected to increase to 1.5% after a 1.3% rate in February. The question is if we get something greater than the expected prints will Treasuries back-up or will they buy into the Fed’s “temporary” characterization? Retail Sales for March is the next big release and that’s expected to show a nice pop in spending as consumers started receiving their Stimulus 3.0 checks with many quickly spending their booty with even more spending expected this month.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.01% Unchanged
6 Month 0.03% Unchanged
1 Year 0.06% Unchanged
2 Year 0.16% -0.01%
3 Year 0.34% -0.01%
5 Year 0.87% -0.05%
10 Year 1.67% -0.03%
30 Year 2.33% -0.02%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.20%
6 Mo LIBOR 0.21%
12 Mo LIBOR 0.29%
Swap Rates  
3 Year 0.494%
5 Year 0.990%
10 Year 1.690%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Apr 13 NFIB Small Business Optimism Mar 98.0 98.0 95.8
Apr 13  CPI (MoM) Mar 0.5% 0.5% 0.4%
Apr 13 CPI (YoY) Mar 2.5% 2.5% 1.7%
Apr 13 Core CPI (MoM) Mar 0.2% 0.2% 0.1%
Apr 13 Core CPI (YoY) Mar 1.6% 1.5% 1.3%
Apr 15 Advance Retail Sales (MoM) Mar 5.1% 5.5% -3.0%
Apr 15 Industrial Production (MoM) Mar 2.8% 2.5% -2.2%
Apr 16 Housing Starts (MoM) Mar 13.0% 12.6% -10.3%
Apr 16 U. of Mich. Sentiment Apr 89.0 89.0 84.9

Top 5 Events for the Week

April 5— 9, 2021

1. Fed Speak—All Week

It’s another full week of Fed speakers after an informative FOMC minutes from March and Fed speeches last week. A total of eleven Fed officials will offer their views with the highlight being Fed Chair Powell tomorrow at the Economic Club of Washington. That speech will have the added benefit of coming after the March CPI release and will give the Chair another opportunity to deflect any concern over the expected pick-up in inflation as a temporary phenomenon and not a demand-led push to more durable price increases. That report will probably factor into most of the comments that come after its release. And with many Fed presidents speaking this week, who seem to be the group wishing to make headlines, just be aware of the source of any comments suggesting the Fed may move sooner than previous outlooks. If it’s a Fed president that makes the comment it’s a bit less newsworthy  than if it were uttered by the Fed Chair or a Fed governor.

2. March CPI Report—Tuesday

For months now, most market watchers have been expecting inflation to move higher. The March CPI release will be the first to experience the so-called base effect that will result in higher year-over-year prices. In this report we will see what happens when March 2020 rolls off the YoY calculations with more to come next month when April 2020 rolls off.  We agree with the Fed outlook that the expected increase is likely to be transitory, while a more durable increase in prices will come from rising wages and increased demand for consumption.   For March, overall CPI is expected to increase  0.5% versus 0.4% the prior month as gas prices drive the overall increase. The core rate (ex-food and energy) is expected to increase 0.2% versus 0.1% in February.  CPI (YoY) is expected to jump to 2.5% after last month’s 1.7% result, there is your base effect in action. Core CPI (YoY) is expected to increase to 1.5% after a 1.3% rate in February. The question is if we get something greater than the expected prints will Treasuries back-up or will they buy into the Fed’s “temporary” characterization?

 

3. March Retail Sales—Thursday

With many consumers receiving their Stimulus 3.0 checks in March, the retail sales numbers are expected to reflect a nice pop in spending. For the month, retail sales are expected to be increase 5.5% versus a –3.0% decrease in February. Sales ex-auto and gas are expected to be up 6.5% versus a –3.3% dip in February. The retail sales control group—a direct feed into GDP—is expected to post a solid 7.0% increase versus a –3.5% drop in February. The March strength will largely offset the weakness in February and that should lead to a strong GDP report for the first quarter. Currently, Bloomberg consensus has first quarter GDP growth at 4.7% with consumer consumption up strongly at 5.1%.

4. April Preliminary Univ. of Michigan Consumer Sentiment—Friday

As alluded to above in the retail sales discussion, two-thirds of the US economy is consumption-based so gauging consumer sentiment is crucial to determining how they feel about spending, especially as virus cases trend lower and vaccination rates climb. For April, unsurprisingly the Bloomberg consensus is for sentiment to improve to 89.0 versus March’s  84.9 reading while consumer expectations move even higher to 96 versus 93.0 in March. The sentiment index peaked at 101 just over a year ago and bottomed at 68.0 in April. Thus, sentiment is expected to reflect the improved virus and economic outlook and that bodes well for spending in March and succeeding months.

5. March Housing Starts and Permits—Friday

The housing market is one sector of the economy that has largely kept up the momentum from the early months of the recovery, but a pause in January and February had some starting to squirm a bit, but have no fear, the numbers are expected to reverse in March.   Starts are expected to increase 12.6% to 1.600 million units annualized versus February’s –10.3% dip, or 1.421 million units annualized. Permits are expected to increase  1.7% to 1.750 million annualized versus 1.720 million in February. So after a soft spot early in 2021 housing starts and permits are expected to reverse course as higher mortgage rates are not expected to pose too severe of headwinds for prospective home buyers, at least not yet.


 

Yield Universe

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Published: 04/12/21 Author: Thomas R. Fitzgerald