FOMC Meeting, GDP, and More Inflation Numbers

The FOMC meeting on Wednesday will be viewed more for any change in tone after the recent bout of risk-off activity that sent yields to levels last seen in February as growth prospects were marked down given the increasing delta variant case counts across the globe. While the Fed doesn’t alter policy or outlook on every twist and turn in the market, they have been consistent in messaging that the direction of public health will guide economic growth as we try to emerge from the pandemic. While the June meeting was characterized by a slightly hawkish turn, with two rate hikes pulled forward into 2023 from 2024, the meeting this week may bring reminders that the virus is still far from being vanquished. We suspect there will be mention of QE tapering talk too but specifics are likely to be few, if any.  With no updates to their rate and economic forecasts Powell’s post-meeting press conference will be the primary chance for the Fed to guide any adjustments to their outlook that may have occurred since the June 16 meeting. Away from the Fed we get our first look at second quarter GDP which is expected to peak at 8.5% (QoQ) annualized which should be the high water mark for this recovery cycle.  Before that, however, we get the Conference Board’s read on consumer confidence which is expected to be down a tick from June but still solid, unlike the University of Michigan’s latest read on sentiment. Personal income and spending numbers for June are due Friday but eyes will be on what is expected to be another climb in the core PCE inflation number.


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% Unchanged
6 Month 0.05% Unchanged
1 Year 0.06% -0.01%
2 Year 0.19% -0.02%
3 Year 0.36% -0.04%
5 Year 0.69% -0.04%
10 Year 1.25% +0.02%
30 Year 1.89% +0.04%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.13%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.24%
Swap Rates  
3 Year 0.470%
5 Year 0.782%
10 Year 1.249%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jul 26 New Home Sales Jun 800k 798k 769k
Jul 27 Durable Goods Orders Jun 2.1% 2.0% 2.3%
Jul 27 Durables Ex Transport. Jun 0.7% 0.8% 0.3%
Jul 27 S&P CoreLogic 20-City (YoY) Jun 16.40% 16.20% 14.88%
Jul 27 Conf. Board Consumer Confidence Jul 124.1 124.0 127.3
Jul 28 FOMC Rate Decision Jul 28 NA NA NA
Jul 29 GDP Annualized (QoQ) 2Q A 8.5% 8.5% 6.4%
Jul 30 Personal Spending Jun 0.7% 0.7% 0.0%
Jul 30 Core PCE (YoY) Jun 3.7% 3.7% 3.4%

 


Top 5 Events for the Week

July 26—30, 2021

1.  FOMC Meeting—Wednesday

The FOMC meeting on Wednesday will be viewed more for any change in tone after the recent bout of risk-off activity that sent yields to levels last seen in February as growth prospects were marked down given the increasing delta variant case counts across the globe. While the Fed doesn’t alter policy or outlook on every twist and turn in the market, the Fed has been consistent in its messaging that the direction of public health will guide economic growth as well as we try to emerge from the pandemic. So while the June meeting was characterized by a slightly hawkish turn, with two rate hikes pulled forward into 2023 from 2024, the meeting this week may bring reminders that the virus is still far from being vanquished. We suspect there will be mention of QE tapering talk too but specifics are likely to be few, if any. Finally, this meeting won’t include any updates to their rate and economic forecast so Powell’s post-meeting press conference will be the primary chance for the Fed to guide any adjustments to their outlook that may have occurred since the June 16 meeting.

2. June Personal Income and Spending — Friday

The personal income and spending numbers are finally settling down after a bout of volatility with stimulus checks flowing through the income numbers in March and flowing through the spending numbers in March and April.  For June, personal income is expected to decrease  -0.4% versus a –2.0% dip in May.  Personal spending, meanwhile, is expected to have increased 0.7% versus an unchanged reading in May.  The all important inflation number in the report that the Fed prefers (Core PCE) is expected to increase 0.6% MoM versus 0.5% in May and 3.7% YoY from 3.4% in May. It’s still too early to start worrying whether the inflation spikes are not all transitory in nature but the Fed will want those numbers to start plateauing pretty soon.

Source: Bloomberg

3. July 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.  The latest University of Michigan reading on sentiment took a turn lower as inflation concerns were often cited. For July, the Conference Board’s confidence reading is expected to turn a bit lower to 124.0 versus 127.3 in June.  Confidence levels, however, are still near the pre-pandemic highs in the  130’s so a little turn lower from these pretty lofty levels is nothing to get too worried about.  The expected solid read on confidence points to steady consumer consumption in the months ahead.

4. June Durable Goods Orders—Tuesday

The manufacturing side of the economy has been strong since early in the pandemic, not having the face-to-face constraints of the more service-oriented businesses. Consumer consumption has also focused more on hard goods over services and durable goods orders have followed suit in posting solid activity during much of the pandemic. The current thought is that with the economy reopening more and more that the services-side of the economy will take a hand-off from the manufacturing side and carry the economy in the second half of 2021. In the meantime, for June, orders are expected  to increase 2.0% versus 2.3% in May. Orders less the volatile transportation sector are expected to increase 0.8% versus 0.3% in May. Thus, expectations are that the durable goods side of the economy will continue it’s solid performance through June.

5. Second Quarter GDP -Thursday

The first look at second quarter GDP is expected to come in at 8.5% (QoQ) annualized which should be the high water mark for the economic recovery during this cycle. The expected second quarter result compares to 6.4% in the first quarter and is expected to be driven mostly by a surge in personal consumption. Those outlays are expected to spike 10.5% during the quarter compared to 11.4% in the first quarter. Both periods were influenced by the stimulus checks that went out in December and March. That’s why third quarter GDP is expected to “slow” to  6.7% as personal consumption moderates to 6.1% as the influence of those stimulus checks wanes.


 

Yield Universe

 

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Published: 07/26/21 Author: Thomas R. Fitzgerald