Fed Speakers Get Another Chance to Talk Transitory Inflation

After a week of consequential economic data, this week is a bit thin in that respect but we do get some Fed input that will be closely followed by investors.  The minutes from the April 28 FOMC meeting will be released on Wednesday, and while the post-meeting statement and press conference were fairly uneventful, with Powell refusing to entertain any thoughts of tapering talk, the minutes might provide a little more insight there, especially in light of the strong April CPI report that followed. Also, Fed speak, mostly will give officials another chance to air their thoughts on inflation. One of the big linchpins of the Fed’s price stability mandate is to have inflation expectations well-anchored but the latest University of Michigan Sentiment reading registered the highest 1-year inflation expectation (4.6%) since 2011 so officials will likely be asked about inflation expectations getting unmoored, as they like to say. It should be noted, however, that in 2011 actual inflation began to fall just as inflation expectations were peaking, so take that for what it’s worth. Away from the Fed another round of housing data is due with existing home sales on Friday and housing starts and permits tomorrow. Both are expected to show solid results despite the limited inventory and higher lumber prices

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.00% Unchanged
6 Month 0.02% Unchanged
1 Year 0.04% Unchanged
2 Year 0.15% Unchanged
3 Year 0.32% +0.03%
5 Year 0.81% +0.03%
10 Year 1.63% +0.04%
30 Year 2.34% +0.03%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.16%
6 Mo LIBOR 0.19%
12 Mo LIBOR 0.27%
Swap Rates  
3 Year 0.447%
5 Year 0.900%
10 Year 1.593%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
May 17 Empire Manufacturing May 23.8 24.0 26.3
May 17 NAHB Housing Index May 83 83 83
May 18 Housing Starts Apr -2.1% -2.0% 19.4%
May 18 Building Permits Apr 0.6% 0.6% 2.3%
May 19 FOMC Meeting Minutes Apr 28 NA NA NA
May 20 Initial Jobless Claims May 15 460k 455k 473k
May 20 Leading Index Apr 1.3% 1.3% 1.3%
May 21 Existing Home Sales (MoM) Apr 1.2% 1.1% -3.7%
May 21 Existing Home Sales Apr 6.09m 6.08m 6.01m

Top 5 Events for the Week

May 17— 21, 2021

1. Fed Minutes and Fed Speak—All Week

After a week of consequential economic data this week is a bit thin in that respect but we do get some Fed input that will be closely followed by investors.  The minutes from the April 28 FOMC meeting will be released on Wednesday, and while the post-meeting statement and press conference were fairly uneventful, with Powell refusing to entertain any thoughts of tapering talk, the minutes might provide a little more insight there, especially in light of the strong April CPI report. Also, Fed speak, mostly at the Atlanta Fed Conference, will give officials another chance to air their thoughts on inflation. One of the big linchpins of the Fed’s price stability mandate is to have inflation expectations stable but the latest University of Michigan Sentiment reading registered the highest 1-year inflation expectation (4.6%) since 2011 so officials will likely be asked about inflation expectations getting unmoored, as they like to say. It should be noted, however, that in 2011 actual inflation began to fall just as inflation expectations were peaking, so take that for what it’s worth.

Source: Bloomberg

2. April Leading Index—Thursday

The Leading Index-a gauge of nearly 80 variables that tend to move before the overall economy– plumbed new depths this time last year, as one would expect, but rebounded smartly in the summer only to plateau moving into year-end as virus case counts started spiking again.  But vaccines getting into more people, and case counts continuing to trend lower, the index has been rebounding of late. Any reading below zero constitutes a soon-to-be contracting economy while above zero reflects an expanding economy. For April the index is expected to move up  1.3%  same as the reading in March. Thus, the Leading Index for April is expected to predict an economy that will continue in its growth trajectory.

3. April Existing Home Sales—Friday

On Friday, we’ll get April existing home sales—accounting for 90% of the residential market—which are expected to be up slightly from March’s results. The April print is expected to  see sales rise 1.1% month-over-month to 6.08 million houses from 6.01 million sold in March, on an annualized basis.  The housing sector continues to benefit from low mortgage rates, albeit off their lows, but lack of inventory and higher prices have slowed the upward momentum a bit in recent months.

4. April Housing Starts and Permits—Tuesday

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 the numbers improved in March but some plateauing in April is expected as higher lumber prices have slowed some homebuilders plans.   Starts are expected to decrease 2.0% to 1.705 million units annualized versus March’s 19.4% surge, or 1.739 million units annualized. Permits are expected to increase slightly by 0.6% to 1.770 million annualized versus 1.759 million in March. So after a soft patch in early 2021 housing starts and permits are expected to generally remain solid, despite modestly higher mortgage rates and significantly higher lumber prices.

5. Weekly Initial Jobless Claims—Thursday

It’s time to check in on the weekly jobless claims numbers because they seem to be dipping down again after being rather stable for months. Claims have now moved lower for two straight weeks with the latest claims figure of  473,000 the lowest since the pandemic hit. The expectation for claims this week is 455,000, which would be yet another new pandemic low. That bodes well for the May jobs report to bounce back from the disappointing April report.


 

Yield Universe

 

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Published: 05/17/21 Author: Thomas R. Fitzgerald