The Horse-trading Over Stimulus 3.0 Begins

Now that the Biden Stimulus Proposal is out the market will continue to assess what may get passed and how soon. The $1.9 trillion price tag certainly was higher than most estimates and Treasuries initially rallied on the assumption that the hefty price might find some Democratic senators balking and thus delaying passage. Biden is a creature of the  Senate and knows how to negotiate especially when it’s with his own side. West Virginia Senator Joe Manchin was out before the proposal speaking words of concern about being judicious with further deficit spending. The first set of programs can all be passed via reconciliation which requires a simple majority so the market will be attuned to any noise of Democratic defections or closing of ranks behind the  proposal. Also, Treasury-elect Janet Yellen will speak before the Senate Finance Committee today and is expected to tell senators to “act big” given low borrowing costs and extensive need in the country.  That has set a risk-on mood in equities this morning with Treasury yields higher. Away from the DC machinations it’s a light week of data with housing starts and permits on Thursday expected to be solid while existing home sales on Friday are expected to be off November’s activity but still also solid.

 


Treasuries
Treasury Curve Today Week Change
3 Month 0.07% -0.01%
6 Month 0.09% Unch
1 Year 0.09% -0.01
2 Year 0.14% +0.01%
3 Year 0.21% Unch
5 Year 0.47% -0.01%
10 Year 1.11% Unch
30 Year 1.86% Unch

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.22%
6 Mo LIBOR 0.25%
12 Mo LIBOR 0.32%
Swap Rates
3 Year 0.278%
5 Year 0.540%
10 Year 1.11%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jan 21 Housing Starts Dec 1.560mm 100.3 101.4
Jan 21 Housing Starts (MoM) Dec 0.8% 0.8% 1.2%
Jan 21 Building Permits Dec 1.600mm 1.603mm 1.635mm
Jan 21 Building Permits (MoM) Dec -2.1% -2.0% 5.9%
Jan 21 Initial Jobless Claims Jan 16 868k 923k 965k
Jan 21 Philly Fed Business Outlook Jan 12.0 11.3 9.1
Jan 21 Bloomberg Consumer Comfort Jan 17 NA NA 43.2
Jan 22 Existing Home Sales Dec 6.55mm 6.55mm 6.69mm
Jan 22 Existing Home Sales (MoM) Dec -2.1% -2.1% -2.5%

calendar icon Top 5 Events for the Week

Jan. 19 — 22, 2021

1. Assessing the Biden Stimulus Proposal — All Week
2. December Housing Starts & Permits — Thursday
3. Philly Fed Business Outlook — Thursday
4. Initial Jobless Claims — Thursday
5. December Existing Home Sales — Friday

 

1.  Assessing the Biden Stimulus Proposal—All Week

Now that the Biden Stimulus Proposal is out the market will continue to assess what may get passed and how soon. The $1.9 trillion price tag certainly was higher than most estimates and Treasuries initially rallied on the assumption that the hefty price might have find some Democratic senators balking and thus delaying passage. Biden is a creature of the  Senate and knows how to negotiate especially when it’s with his own side. West Virginia Senator Joe Manchin was out before the proposal speaking words of concern about being judicious with further deficit spending. The first set of programs can all be passed via reconciliation which requires a simple majority so the market will be attuned to any noise of Democratic defections or closing of ranks behind the  proposal. Also, Treasury-elect Janet Yellen will speak before the Senate Finance Committee today and is expected to tell senators to “act big” given low borrowing costs and extensive need in the country.

 

2.  December Housing Starts and Permits—Thursday

The housing market is one sector of the economy that has kept up the momentum from the early months of the recovery, but a bit of a pause is expected for December.  Starts are expected to increase 0.8% to 1.560 million units annualized versus November’s 1.2% gain, or 1.547 million units annualized. Permits are expected to decrease  -2.0% to 1.603 million annualized versus 1.635 million in November.  So a decent read is expected for December, but some plateauing is noted in the slight expected gains in starts and softer read on permits. Given the run off the pandemic lows as shown in the graph, a bit of a pause is understandable.

 

Monthly Housing Starts & Permits

 

3.  January Philly Fed Business Outlook —Thursday

The Philly Fed Business Outlook is a survey of 125 businesses in the Philly Fed District that looks at a host of indicators with the two primary results being the Current Conditions Index and the Expected in Six Months results.  The Current Conditions outlook is expected to be 11.3 versus 9.1 in December (anything above 0 reflects expansion). The index hit a pre-pandemic high of 37.0 back in February 2017 and a low of –46.8 in April.

 

4.  Initial Jobless Claims—Thursday

With a slow week of releases the Initial Jobless Claims Report will get some outsized attention once again, especially as last week saw claims climb to nearly a million as the backsliding in the labor market continued.  For the week ending January 16, claims are expected to be 923 thousand versus 965 thousand the prior week. Claims have held above 800 thousand for  four out the last six weeks and this could be the second week in a row to be over 900 thousand. That is one reason the recently passed Stimulus 2.0 is important because it extends expiring unemployment benefits into March.

 

5.  December Existing Home Sales—Friday

On Friday we’ll get December existing home sales—accounting for 90% of the residential market—which are 5xpected to be down slightly from November which was also down a bit from October. The December print is expected to  shrink  –2.1% to 6.55 million houses from 6.69 sold in November on an annualized basis. The housing sector continues to benefit from record low mortgage rates and the December numbers, while expected to be slightly down from November,  should continue to reflect a housing market hitting on all cylinders.  The 6.55 million annualized figure expected in December compares to November 2005 when sales peaked at 7.25 million during the housing bubble.

 


bar graph icon  Yield Universe

Yield/Duration Relationship

Securities offered through the SouthState Bank Correspondent Division ("SouthState") 1) are not FDIC insured, 2) not guaranteed by any bank, and 3) may lose value including a possible loss of principal invested. SouthState does not provide legal or tax advice. Recipients should consult with their own legal or tax professionals prior to making any decision with a legal or tax consequence. The information contained in the summary was obtained from various sources that SouthState believes to be reliable, but we do not guarantee its accuracy or completeness. The information contained in the summary speaks only to the dates shown and is subject to change with notice. This summary is for informational purposes only and is not intended to provide a recommendation with respect to any security. In addition, this summary does not take into account the financial position or investment objectives of any specific investor. This is not an offer to sell or buy any securities product, nor should it be construed as investment advice or investment recommendations.

Published: 01/19/21 Author: Thomas R. Fitzgerald