FOMC and GDP

On Wednesday the FOMC Meeting concludes, and while we don’t expect any change in policy we expect to see the Fed up their characterization of the economy given the string of strong numbers since the March 17 meeting.  In the post-meeting press conference Powell is bound to be asked about whether they discussed QE tapering but we are also just as sure they didn’t. That is more likely to come in the summer, perhaps at the Jackson Hole symposium in August, but investors will be keen for any statement that does not come across as uber-dovish, as has been the case since the pandemic started. On Thursday, we’ll get first quarter GDP. Bloomberg consensus has it at 6.5% QoQ Annualized while the Atlanta Fed’s GDNow model is calling for an 8.3% gain. Recall that in their March economic forecast, the Fed upped expectations for full-year GDP to 6.5%. If Bloomberg consensus is accurate, that will make a full-year run at 6.5% a bit ambitious. The fiscal stimulus bill passed in mid-quarter, and those $1,400 stimulus checks, goosed March numbers and will do so a little in April but after that the economy will largely be left to its own devices to keep growth up over 6% for the balance of the year. If the first quarter comes in closer to the Atlanta Fed’s estimate then that full-year 6.5% projection is doable even with a little backsliding in the second half of 2021.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.02% +0.0%
6 Month 0.03% -0.01%
1 Year 0.05% -0.01%
2 Year 0.16% Unchanged
3 Year 0.34% Unchanged
5 Year 0.84% +0.02%
10 Year 1.59% +0.01%
30 Year 2.27% +0.01%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.18%
6 Mo LIBOR 0.20%
12 Mo LIBOR 0.28%
Swap Rates  
3 Year 0.478%
5 Year 0.932%
10 Year 1.586%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Apr 26 Durable Goods Orders Mar 2.4% 2.3% -1.2%
Apr 26 Durable Goods Ex Trans. Mar 1.6% 1.6% -0.9%
Apr 27 S&P CoreLogic 20-City YoY Feb 11.80% 11.80% 11.10%
Apr 27 Consumer Confidence Apr 112.0 112.0 109.7
Apr 28 FOMC Rate Decision Apr 28 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Apr 29 GDP Annualized QoQ 1Q 6.9% 6.9% 4.3%
Apr 30 Personal Spending Mar 4.3% 4.2% 2.3%
Apr 30 Core PCE Deflator (YoY) Mar 1.8% 1.8% 1.4%
Apr 30 U. of Mich. Sentiment Apr F 87.5% 87.5% 86.5%

Top 5 Events for the Week

April 26— 30, 2021

1. FOMC Rate Decision—Wednesday

On Wednesday the FOMC Meeting concludes and while we don’t expect any change in policy, it will be interesting to see if the Fed ups their characterization of the economy given the string of strong numbers since the March 17 meeting. Recall the Fed refreshed their rate and economic forecasts at that March meeting and won’t due so again until June so the primary takeaway from this meeting is likely to be the post-meeting press conference. There,  Powell is bound to be asked about whether they discussed QE tapering but we are also just as sure they didn’t. That is more likely to come in the summer, perhaps at the Jackson Hole symposium in August, but investors will be keen for any statement that does not come across as uber-dovish, as has been the case since the pandemic started.

2. Biden’s American Family Plan—Wednesday

While major components of President Biden’s proposed American Families Plan were leaked last week, on Wednesday he will address a joint session of Congress to provide more details on the proposal. The big takeaways so far are a near doubling of capital gains taxes on those investors making more than $1.0 million. The rate would jump from 20% to 39.6% for those high-earning Americans and with the additional 3.8% Obamacare tax on top the tax rate could hit 43.4% on capital gains. The equity market took a small hit on Thursday when the capital gains proposal was leaked, perhaps something of a trial balloon, but this week we should see more details and then the wagering will begin on what Senator Joe Manchin will do. With the reconciliation route already established in the Senate, Manchin has become the key Democratic senator to win over. The market will be watching for his early statements.

3. First Quarter GDP—Thursday

On Thursday, we’ll get the much anticipated first reading on first quarter GDP. Bloomberg consensus has it at 6.9% QoQ Annualized while the Atlanta Fed’s GDNow model is calling for a 8.3% gain. Recall that in their March economic forecast, the Fed upped their expectation for full-year GDP to be 6.5%. If Bloomberg consensus is accurate, that will make a full-year run at 6.5% a bit ambitious. The fiscal stimulus bill passed in mid-quarter, and those $1,400 stimulus checks, really goosed March numbers and will do so a little in April but after that the economy will largely be left to its own devices to keep growth up over 6% for the balance of the year. If the first quarter comes in closer to the Atlanta Fed’s projections then that full-year 6.5% projection is doable even with a little backsliding in the second half of 2021.  Personal consumption is expected to increase 10.5% for the quarter which is largely due to the stimulus checks and that is where the bulk of the GDP growth will be coming from.  Part of the recent Treasury rally stems from the belief that after this strong quarter, growth will start slowly to revert to its long-run mean of around 2%, but just how much of a spike we got in the first quarter is what the market will be waiting to see.

4. March Personal Income and Spending—Friday

While the personal income and spending numbers are buried in the first quarter GDP report, it will be interesting to see the numbers for March alone and perhaps identify how much momentum was carried into April. Personal income is expected to be goosed by the arrival of the $1,400 stimulus checks with income expected to increase  20.0% versus a –7.1% decline in February. That 20.0% dwarfs the first stimulus checks back in April 2020 when incomes rose 12.4% for the month. Personal spending, meanwhile, is expected to have increased 4.3% versus –1.0% in February. While some of that excess income will go to spike the savings rate, it’s also likely that many consumers received their checks late in the month with little time to spend them. Expect April spending to soar as that cash begins to burn a hole in plenty of pockets.

5. April Consumer Confidence—Tuesday

With two-thirds of the economy consumption-based it’s always important to look at the confidence of the consumer for tells on future spending and hence GDP. While there was a predictable dip at the early stages of the pandemic it never fell to levels of the Great Recession as shown below, perhaps due to stimulus benefits and furloughed workers hopes for a quick return to work.  For April, confidence is expected to continue its upward trajectory at 112.0 versus 109.7 in March.  Confidence levels are slowly approaching the pre-pandemic highs in the  130’s which speaks to the impact that the spreading vaccines and further re-openings are having on confidence readings. The expected uptrend in confidence points to increased consumer consumption in the months ahead.


 

Yield Universe

 

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Published: 04/26/21 Author: Thomas R. Fitzgerald