FOMC Meeting Highlights the Week

The FOMC meeting comes at an opportune time with Stimulus 3.0 now passed, and more good news on the virus/vaccine front, yields have pushed to pandemic highs. One thing investors will be looking for is whether the Fed will still express no discomfort from these higher yields? In addition to that sentiment check investors will be eyeing the Fed’s updated rate and economic forecast. Most likely the economic outlook will be upgraded when in December they saw 2021 GDP at 4.2%. Bloomberg consensus is at 5.5%. The Fed had core PCE never rising above 2.0% through 2023 in the December forecast. Will that still be the case? Finally, the median dots didn’t see a rate hike through 2023. Despite Powell’s insistence that they will be patient does that rate outlook shift a little forward in light of the expected economic upgrade? Away from the Fed, February retail sales are expected to be off January’s stimulus check-fueled surge, but with more checks coming February’s expected lull will be but a brief pause before the Stimulus 3.0 checks start arriving later this month. So expect another surge in March retail sales.


Treasuries

Treasury Curve Today Week Change
3 Month 0.02% -0.02%
6 Month 0.04%  -0.01%
1 Year 0.07% Unch
2 Year 0.16% +0.01%
3 Year 0.34% +0.02%
5 Year 0.85% +0.02%
10 Year 1.63% +0.03%
30 Year 2.38% +0.08%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.19%
6 Mo LIBOR 0.19%
12 Mo LIBOR 0.28%
Swap Rates  
3 Year 0.455%
5 Year 0.929%
10 Year 1.637%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Mar 15 Empire Manufacturing Mar 14.5 14.5 12.1
Mar 16 Advance Retail Sales (MoM) Feb -0.7% -0.7% 5.3%
Mar 16 Retail Sales Ex Autos & Gas (MoM) Feb -1.3% -1.3% 6.1%
Mar 16 Retail Sales Control Group Feb -1.1% -1.1% 6.0%
Mar 16 Industrial Production (MoM) Feb 0.4% 0.4% 0.9%
Mar 17 FOMC Rate Decision Mar 17 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Mar 17 Housing Starts (MoM) Feb -1.0% -1.0% -6.0%
Mar 18 Philly Fed Business Outlook Mar 24.0 24.0 23.1
Mar 18 Leading Index Feb 0.3% 0.3% 0.5%

Top 5 Events for the Week

Mar. 15— 18, 2021

  1. FOMC Rate Decision —Wednesday
  2. February Retail Sales —Tuesday
  3. February Housing Starts & Permits—Wednesday
  4. February Leading Index—Thursday
  5. March Philly Fed Business Outlook—Thursday

 

1. FOMC Rate Decision—Wednesday

The FOMC meeting comes at a most opportune time this month with Stimulus 3.0 just passed and more good news on the virus/vaccine front having pushed yields to pandemic highs. Will the Fed still express no discomfort from these higher yields? In addition to that sentiment check investors will be eyeing the Fed’s updated rate and economic forecast. Most likely the economic outlook will be upgraded when in December they saw 2021 GDP at 4.2%. Bloomberg consensus is at 5.5%. They also had core PCE never rising above 2.0% through 2023. Will that still be the case given the upgraded economic outlook? Finally, the median dots didn’t see a rate hike through 2023. Despite Powell’s insistence that they will be patient does that rate outlook shift at least a little forward in light of the expected economic upgrade? Also, this will be the first look at their 2024 projections. Finally, the Supplemental Leverage Ratio exemption expires at the end of this month if it’s not extended. This exemption has allowed the biggest banks to buy Treasuries without having to allocate capital to the purchases so expect the Fed to extend the exemption lest they pour fuel on the higher yield fire.

 

2. February Retail Sales—Tuesday

After a disappointing couple months of sales when consumers battled a surge in virus cases and renewed lockdowns in some areas, January found much better sales as consumers quickly spent those Stimulus 2.0 checks. Alas, sales are expected to dip from the pop in January but not by a material margin. For February, retail sales are expected to be down –0.7% versus 5.3% in January. Sales ex-auto and gas are also expected to be down –1.3% versus the 6.1% pop in January. The retail sales control group—a direct feed into GDP—is expected to be down -1.1% versus the strong 6.0% gain in January.  While February numbers are expected to be off January’s one-time spike a better way to look at is to average the two months together and that provides a view that retail sales through two-thirds of the quarter are doing just fine and as virus case counts continue to recede, and vaccinations spread, retail sales should only build on the early 2021 results.

 

3. February Housing Starts & Permits—Wednesday

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 in January is expected to carry over in February. But have no fear that the market is rolling over, starts and permits are still expected to be at or near a level last seen during the housing bubble of the mid-2000’s.   Starts are expected to decrease –1.0% to 1.565 million units annualized versus January’s –6.0% dip, or 1.580 million units annualized. Permits are expected to decrease  -7.2% to 1.750 million annualized versus 1.886 million in January. Have no fear about the expected decline versus January as that month’s print was the highest since May, 2006.   So February is expected to settle a bit from the recent torrid pace but still altogether the housing market looks solid in early 2021.

 

4. February Leading Index—Thursday

The Leading Index plumbed new depths this time last year, as one would expect, but rebounded smartly in the summer only to plateau moving into year-end and case counts started spiking again. For February the index is expected to be up 0.3%  and that will be coming off a 0.5 gain in January. The stock rally in January helped to hold up the index, but that wasn’t the case in February but with other factors improving like vaccinations and declining case counts helping fuel a rebound in confidence the index is still expected to post a decent gain for the month.

 

5. March 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 24.0 versus 23.1 in February (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. Just prior to the pandemic the February 2020 print was 30.8 so we’re still a bit off that outlook but moving in the right direction.

 


Yield Universe

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Published: 03/15/21 Author: Thomas R. Fitzgerald