All Eyes on Jackson Hole

There had been speculation as late as a few weeks ago that the Jackson Hole Fed Policy Retreat could be the venue in which Fed Chair Jerome Powell put some meat on the bones of taper talk with dates of initiation and some outline of the speed of tapering asset purchases. With the acceleration of virus cases of late that is probably not going to happen this week at Jackson Hole. The July FOMC meeting minutes revealed quite a bit of discussion about tapering but no firm guidance was offered as to when a formal announcement would come. Investors will be focused on Powell’s keynote address at Jackson Hole and whether he adjusts some of the tapering expectation for later this year, or early 2022. The July FOMC meeting came before some of the worst spikes in delta variant cases so investors will be watching for any additional tapering guidance, and any tempering of economic growth expectations given a now longer reopening and return to office timeline as the Fed has repeatedly tied the course of economic recovery to the trend in the pandemic.

Away from Wyoming, the July Personal Income and Spending Report on Friday will headline the week’s releases. Some softening in spending is expected after June’s surprisingly strong results but still a decent month of spending is expected and the all-important core PCE inflation indicator is forecasted to tick up to 3.6% from June’s 3.5%.


Treasuries

Treasury Curve Today Week Change
3 Month 0.05% Unchanged
6 Month 0.04% -0.01%
1 Year 0.06% -0.01%
2 Year 0.23% +0.02%
3 Year 0.44% +0.02%
5 Year 0.79% +0.03%
10 Year 1.27% Unchanged
30 Year 1.89% -0.03%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.13%
6 Mo LIBOR 0.15%
12 Mo LIBOR 0.24%
Swap Rates  
3 Year 0.549%
5 Year 0.872%
10 Year 1.279%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Aug 23 Existing Home Sales Jul 5.84m 5.84m 5.86m
Aug 24 New Home Sales Jul 700k 700k 676k
Aug 25 Durable Goods Orders Jul P -0.2% -0.3% 0.9%
Aug 25 Durable Goods Orders Ex Transportation Jul P 0.4% 0.5% 0.5%
Aug 26 GDP Annualized (QoQ) 2Q S 6.6% 6.7% 6.5%
Aug 26 GDP Personal Consumption 2Q S 12.3% 12.2% 11.8%
Aug 27 Personal Income Jul 0.2% 0.2% 0.1%
Aug 27 Personal Spending Jul 0.4% 0.4% 1.0%
Aug 27 PCE Core Deflator (YoY) Jul 3.6% 3.6% 3.5%

 


Top 5 Events for the Week

August 23—27, 2021

1.  Jackson Hole Fed Policy Retreat— Thursday/Friday

There had been speculation as late as a month ago that the Jackson Hole Fed Policy Retreat could be the venue in which Fed Chair Jerome Powell put some meat on the bones of taper talk with dates of initiation and some outline of the speed of tapering asset purchases. With the acceleration of virus cases of late that is probably not going to happen this week at Jackson Hole. The July FOMC meeting minutes revealed quite a bit of discussion about tapering but no firm guidance was offered as to when a formal announcement would come. Investors will be focused on Powell’s keynote address at Jackson Hole and whether he adjusts some of the tapering expectation for later this year, or early 2022. The July FOMC meeting came before some of the worst spikes in delta variant cases so investors will be watching for any acknowledgement of that and any tempering of economic growth expectations given a now longer reopening and return to office timeline as the Fed has repeatedly tied the course of economic recovery to the trend in the pandemic.

2.  July Personal Income and Spending- Friday

The personal income and spending numbers have settled down after a bout of volatility with stimulus checks flowing through the income numbers in March and flowing through the spending numbers in March and April.  For July, personal income is expected to increase  0.2% versus 0.1% in June.  Personal spending, meanwhile, is expected to increase 0.4% versus the solid 1.0% gain in June.  The all important inflation number in the report that the Fed prefers (Core PCE) is expected to increase 0.3% MoM versus 0.4% in June and 3.6% YoY from 3.5% in June. It’s still too early to start worrying whether the inflation spikes are not all transitory in nature but the Fed will want those numbers to start plateauing pretty soon but they appear to be heading in that direction.

Source: Bloomberg

3. July Existing Home Sales—Monday

Existing home sales—accounting for 90% of the residential market— are expected to be up slightly from May’s results. The July print is expected to  see sales decrease –0.5% month-over-month to 5.84 million houses from 5.86 million sold in June, on an annualized basis.   Scarce inventory and rapid price appreciation have created a modest headwind to the housing sector but overall activity remains solid.

4. July Durable Goods Orders—Wednesday

The manufacturing side of the economy has been strong since early in the pandemic, not having the face-to-face constraints of the more service-oriented businesses. Consumer consumption has also focused more on hard goods over services and durable goods orders have followed suit in posting solid activity during much of the pandemic. The current thought is that with the economy reopening more and more that the services-side of the economy will take a hand-off from the manufacturing side and carry the economy in the second half of 2021. In the meantime, for July, orders are expected  to decrease –0.3% versus 0.9% in June. Orders less the volatile transportation sector are expected to increase 0.5% matching the gain in June. Thus, expectations are that the durable goods side of the economy will soften a bit but nothing dramatic.

5. July New Home Sales -Tuesday

While new home sales only account for about 10% of the housing market they do bring with it all the elements that go into the construction of a home and so it is an important input to GDP and also to the health of the housing market. For the month of July, sales are expected to resume their rise after May and June’s bout of softness.  Sales are expected to increase 3.3% month-over-month to 700 thousand units sold on an annualized basis. Sales continue to be impacted by limited supply and also increasing prices have forced some buyers out of the market but sales still remain relatively healthy but activity has definitely plateaued for now.


 

Yield Universe

Source: SouthState Trading Desk

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Published: 08/23/21 Author: Thomas R. Fitzgerald