Attention Turns to Biden’s Bills

After focusing on Fed speak last week the market will turn its attention to the fate of the Biden Administration’s budget, tax, and infrastructure proposals. While the infrastructure plan has bipartisan support it’s very narrow and will require all 10 Republicans who signed onto it to vote for the final bill avoiding the filibuster. With a tax and budget plan waiting in the wings that will be a party-line reconciliation vote affair keeping those 10 Republicans together on the infrastructure bill will be a delicate task. The other two pieces, budget and tax proposal, already have some Democratic objections so it will be interesting to see if the administration can herd the cats long enough to get their wish list passed. The proposals won’t see final votes this week but the legislative horse trading will be in high gear, and while the action won’t move yields  for awhile investors will be paying attention to the longer-term outlook for the proposals. Away from D.C. we will get a good dose of housing data with housing starts, permits and existing sales. All are expected to post modest gains in activity versus May as lower mortgage rates, receding lumber prices and the summer selling season boost business. Treasuries are starting the week in rally mode as increases in delta variant virus cases across the globe has investors concerned about the future of the economic recovery.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% Unchanged
6 Month 0.05% Unchanged
1 Year 0.07% Unchanged
2 Year 0.21% Unchanged
3 Year 0.40% +0.01%
5 Year 0.73% -0.05%
10 Year 1.23% -0.11%
30 Year 1.85% -0.12%

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 0.497%
5 Year 0.799%
10 Year 1.208%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jul 19 NAHB Housing Market Index Jul 82 81 81
Jul 20 Housing Starts (MoM) Jun 1.2% 1.2% 3.6%
Jul 20 Housing Starts Jun 1.590m 1.590m 1.572m
Jul 20 Building Permits (MoM) Jun 1.0% 1.0% -2.9%
Jul 20 Building Permits Jun 1.700m 1.700m 1.683m
Jul 22 Initial Jobless Claims Jul 17 350k 350k 360k
Jul 22 Leading Index Jun 0.9% 0.9% 1.3%
Jul 22 Existing Home Sales (MoM) Jun 1.7% 1.7% -0.9%
Jul 22 Existing Home Sales Jun 5.90m 5.90m 5.80m

 


Top 5 Events for the Week

July 19—23, 2021

1.  Biden’s Budget, Tax and Infrastructure Bills—All Week

After focusing on Fed speak last week the market will turn its attention to the fate of the Biden Administration’s budget, tax, and infrastructure proposals. While the infrastructure plan has bipartisan support it’s very narrow and will require all 10 Republicans who signed onto it to vote for the final bill avoiding the filibuster. With a tax and budget plan waiting in the wings that will be a party-line reconciliation vote affair keeping those 10 Republicans together on the infrastructure bill will be a delicate task. The other two pieces, budget and tax proposal, already have some Democratic objections so it will be interesting to see if the administration can herd the cats long enough to get their wish list passed. The proposals aren’t likely to see final votes this week but the legislative horse trading will be in high gear, and investors will be paying attention to the longer-term outlook of the proposals.

2. June Housing Starts and Permits — Tuesday

For June, starts are expected to increase 1.2% to 1.590 million units annualized versus May’s 3.6% gain, or 1.572 million units annualized. Permits are expected to be up slightly from May increasing by 1.0% to 1.700 million annualized versus 1.683 million in May. After a soft patch in early 2021 housing starts and permits are expected to generally remain solid and that activity should improve deeper into the summer as another dip in  mortgage rates and below-peak lumber prices boost additional sales.

3. June Existing Home Sales—Thursday

Existing home sales—accounting for 90% of the residential market— are expected to be up slightly from May’s results. The June print is expected to  see sales increase 1.7% month-over-month to 5.90 million houses from 5.80 million sold in May, on an annualized basis.  The expected gain  would break a streak of four straight months of declining sales after January peaked at 6.66 million units sold, on an annualized basis. Scarce inventory and rapid price appreciation seemed to create a modest headwind to the housing sector but the summer selling season is expected to finally lift sales on a month-over-month basis.

Source: Bloomberg

4. June Leading Index—Thursday

The Leading Index-a gauge of nearly 80 variables that tend to move before the overall economy– plumbed new depths 15 months ago, as one would expect, but rebounded smartly in the summer of 2020 only to drift lower into year-end as virus case counts started spiking again.  But vaccines getting into more people, and case counts falling off has the index rebounding of late. Any reading below zero constitutes a soon-to-be contracting economy while above zero reflects an expanding economy. For June the index is expected to move up  0.9% versus 1.3% in May. Thus, the Leading Index for  June is expected to reflect an economy continuing its growth trajectory but with a slight moderation in that growth and that seems to be what the Treasury market is pricing in too.

5. Weekly Initial Jobless Claims -Thursday

The weekly initial jobless claims series has been trending down for three of the last four weeks and six of the last eight and expectations are for the claims series to slide again. This time expectations are for claims to total 350 thousand versus 360 thousand the prior week and that would be a new pandemic low. Continuing claims are expected to trend lower as well dipping to 3.200 million claims versus 3.241 million the prior week.  The 3.241 million claims was a new pandemic low which is expected to be bested with the latest claims figure.  Thus, labor market healing continues but several million more remain outside the labor force since the pandemic and have yet to return and that is something Fed Chair Powell alluded to in his congressional testimony last week as one reason to keep monetary policy very accommodative.


 

Yield Universe

 

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Published: 07/19/21 Author: Thomas R. Fitzgerald