Negotiations over Stimulus 3.0 Begin

With the inauguration behind us and with the Senate already busy confirming the first of President Biden’s Cabinet appointments, we’ll see if the Senate can walk and chew gum at the same time by taking up the $1.9 trillion Stimulus 3.0 package. Republicans are balking at the price tag but have said there are elements of the proposal they can get behind. Meanwhile, House Speaker Pelosi is contemplating structuring a bill that could be passed via reconciliation in the Senate and obviate the need for any Republican votes.  Even in a reconciliation scenario, the Democrats would have to keep all 50 senators in the fold, including the most conservative like Joe Manchin (WV) and John Tester (MT). The FOMC meets this week with the rate decision coming on Wednesday. While there isn’t any suspense that change is coming to monetary policy, the post-meeting press conference will garner some headlines.  One topic that is sure to come up in the Q&A will be when will the Fed start discussing the tapering of quantitative easing purchases.  Fed Chair Jay Powell stressed there’s very little chance tapering discussions will occur until substantial improvement” is seen and we suspect that will be the message again at this week’s meeting, with perhaps a little more clarity on what “substantial improvement” might actually entail.


Treasuries
Treasury Curve Today Week Change
3 Month 0.07% Unch
6 Month 0.08% -0.01%
1 Year 0.09% Unch
2 Year 0.12% -0.02%
3 Year 0.18% -0.03%
5 Year 0.42% -0.05%
10 Year 1.07% -0.04%
30 Year 1.82% -0.04%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.22%
6 Mo LIBOR 0.24%
12 Mo LIBOR 0.31%
Swap Rates
3 Year 0.264%
5 Year 0.521%
10 Year 1.10%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jan 26 S&P CoreLogic CS 20-City YoY Nov 8.10% 8.65% 7.95%
Jan 26 Conf. Board Consumer Confidence Jan 89.0 89.0 88.6
Jan 27 Durable Goods Orders Dec P 1.0% 1.0% 1.0%
Jan 27 FOMC Rate Decision Jan 27 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Jan 28 GDP Annualized (QoQ) 4Q A 4.4% 4.2% 33.4%
Jan 28 Personal Consumption 4Q A 3.0% 3.2% 41.0%
Jan 28 Leading Index Dec 0.2% 0.3% 0.6%
Jan 29 Personal Income Dec 0.2% 0.1% -1.1%
Jan 29 Personal Spending Dec -0.5% -0.4% -0.4%

calendar icon Top 5 Events for the Week

Jan. 25 — 29, 2021

1. Assessing the Biden Stimulus 3.0 Proposal — All Week
2. FOMC Meeting — Wednesday
3. Fourth Quarter GDP — Thursday
4. December Personal Income & Spending — Friday
5. January Consumer Confidence — Tuesday

 

1.  Assessing the Biden Stimulus Proposal — All Week

With the inauguration behind us and with the Senate already busy confirming the first of President Biden’s Cabinet appointments, we’ll see if the Senate can walk and chew gum at the same time by taking up the $1.9 trillion Stimulus 3.0 package. Republicans are predictably balking at the price tag but have said there are elements of the proposal they can get behind. Meanwhile, House Speaker Pelosi is contemplating structuring a bill that could be passed via reconciliation in the Senate and obviate the need for any Republican votes. In reconciliation items must be of a budgetary nature and sunset over a 10-year window. Thus, no rule or regulatory changes can be proposed. Even in a reconciliation scenario, the Democrats would have to keep all 50 senators together, even the most conservative like Joe Manchin (WV) and John Tester (MT). Meanwhile, Senator McConnell is holding up the usually perfunctory Organizing Resolution which sets out the rules of the road for this Senate term and as such Democratic members can’t be seated as committee chairs. McConnell is fighting to retain the filibuster and if we’ve learned anything about McConnell he knows just about ever parliamentary nuance in the book. Don’t expect this to be decided quickly. So even with the slightest of majorities, the Democrats could still be faced with gridlock.

 

2.  FOMC Rate Decision — Wednesday

The FOMC meets for the first time in 2021 this week with the rate decision coming on Wednesday, and while there isn’t much suspense that any change is coming to monetary policy, the post-meeting statement and press conference will still garner some headlines. There won’t be any new forecasts issued—that will come at the next meeting on March 17— so this will be more a placeholder meeting. One topic that is sure to come up in the Q&A will be when will the Fed start discussing the tapering of quantitative easing purchases. There was some chatter a couple weeks ago that riled the market with talk that if the economy was performing well into the second half tapering discussions would be appropriate. Later on both Vice Chair Richard Clarida and Fed Chair Jay Powell stressed there’s very little chance tapering discussions will occur until substantial improvement” is seen and we suspect that will be the message again at this week’s meeting, with perhaps a little more clarity on what “substantial improvement” might actually entail.

 

3.  Fourth Quarter GDP — Thursday

GDP in 2020 was all over the map with record-breaking downdraft in the second quarter (-31.4% QoQ annualized), followed by a record-breaking rebound in the third quarter (33.4%). It’s somewhat comforting that the fourth quarter should give us numbers that at least appear of this world and not some horrible typo that defies any kind of context. Median expectations for fourth quarter GDP are 4.2% with a high estimate of 6.8% and low of 1.5%. Personal consumption, which is two-thirds of the economy, is expected to settle down to 3.2% after a record-breaking 41.0% gain in the third quarter. For the full year 2020, Bloomberg estimates GDP will shrink by –3.5%, which given the ranges experienced and the unprecedented disruption throughout the year that will not be a bad result, all things considered.

GDP

 

4.  December Personal Income & Spending — Friday

Personal income has declined in two of the last three months but December is expected to be positive with a skinny 0.1% month-over-month increase forecast versus a step –1.1% drop in November. Personal spending, however, is expected to dip  -0.4%, matching the drop in November. Meanwhile, core PCE, the Fed’s favorite inflation indicator, is expected to drop a tenth to 1.3% year-over-year versus 1.4% in November.  It hit a multi-year low of  0.9% in April but had been in modest rebound mode since, peaking at 1.5% in September.  It’s still well below the Fed’s target of 2.0% and is another reason to expect the Fed to remain in ultra-accommodative mode for the next couple years.

 

5.  January Consumer Confidence — Tuesday

With two-thirds of the economy consumption-based it’s critical to look at the confidence of said 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, perhaps due to the stimulus measures and furloughed workers hopes for a quick return to work. However, with virus cases trending up and renewed lockdowns in some states, confidence has stalled a bit of late. For January, confidence is expected to be up a touch at 89 versus 88.6 in December.  Confidence levels are obviously well off pre-pandemic highs in the  130’s but also off the 102 reading in September which speaks to the impact  increasing virus cases and limited lockdowns are having on confidence readings.

 

 


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: 01/25/21 Author: Thomas R. Fitzgerald