Investors Weigh Virus Impact While Awaiting December Jobs Report

The first trading week of the new year arrives and while the December jobs report on Friday will deliver some first-tier economic news, the market will likely be focused early in the week on the developments with the Omicron variant as schools reopen and others return from the holiday break.

New cases of the virus are breaking records in many states, and collectively across the country, but the market has so far bought into the Fed’s message that they are more worried about the inflationary impact from possible supply-chain disruptions and other shortages rather than a slowing in economic output. We’ll see if that continues to be the case in the new year.

Aside from the virus impact, the Friday December jobs report will provide some first-tier economic news. The November jobs report was largely shrugged off by the market and the Fed as a one-off and the December jobs report will be the first chance to prove that opinion. The expectation is for a gain of 412 thousand jobs versus 210 thousand in November with the unemployment rate dropping from 4.2% to 4.1%.


Treasuries

Treasury Curve Today Week Change
3 Month 0.06% +0.03%
6 Month 0.19% -0.02%
1 Year 0.39% +0.01%
2 Year 0.79% +0.04%
3 Year 1.02% +0.05%
5 Year 1.34% +0.08%
10 Year 1.58% +0.10%
30 Year 1.97% +0.08%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.21%
6 Mo LIBOR 0.34%
12 Mo LIBOR 0.58%
Swap Rates  
3 Year 1.215%
5 Year 1.428%
10 Year 1.640%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jan 4 ISM Manufacturing Dec 60.1 60.1 61.1
Jan 5 ADP Employment Change Dec 400k 400k 534k
Jan 5 FOMC Meeting Minutes Dec NA NA NA
Jan 6 Trade Balance Nov -$76.5b -$76.5b -$67.1b
Jan 6 ISM Services Dec 67.0 67.0 69.1
Jan 7 Change in Nonfarm Payrolls Dec 412k 412k 210k
Jan 7 Unemployment Rate Dec 4.1% 4.1% 4.2%
Jan 7 Labor Force Participation Dec 61.9% 61.9% 61.8%
Jan 7 Avg. Hourly Earnings Dec 0.4% 0.4% 0.3%

 


Top 5 Events for the Week

January 3 – 7, 2022

1.  Assessing Virus Developments — All Week

The first trading week of the new year arrives and while the December jobs report on Friday will deliver some first-tier economic news, the market will likely be focused early in the week on the developments with the Omicron variant as schools reopen and others return from the holiday break. New cases of the virus are breaking records in many states, and collectively across the country, but the market has so far bought into the Fed’s message that they are more worried about the inflationary impact from possible supply-chain disruptions and other shortages rather than a slowing in economic output. We’ll see if that continues to be the case in the new year.

2.  December Employment Report – Friday

The November jobs report was somewhat of a disappointment but investors and the Fed are treating it more as a one-off rather than a slowing trend. The December report will be the first chance to test that opinion.    The expectation is for a gain of 412 thousand jobs versus 210 thousand in November with the unemployment rate dropping from 4.2% to 4.1%.  The broader underemployment rate continued lower in November dipping to 7.8%. It was as low as  6.8% in December 2019. Also, the Labor Force Participation rate is expected increase a tenth to 61.9%. It was 63.4% prior to the pandemic.

3. December ISM Manufacturing Index – Tuesday

The ISM Manufacturing Index will be the first to give us insight into December activity with the report’s release due tomorrow. The index is expected to post 60.1 versus 61.1 in November indicating the manufacturing sector is expected to remain in solid expansionary territory which has been the case since June 2020. The latest readings have plateaued around the 60-level but some of that is from a lack of parts, namely chips for autos. With supply-chain issues still weighing on the sector these 60-level prints are likely to continue but looking through those temporary shortages the sector still seems very healthy.

4. December ISM Services Index —Thursday

Markets have been waiting for a hand-off from the goods side of the economy to the services side and the previous ISM Services numbers showed that as did the recent GDP numbers.  The November print hit an all-time high at 69.1 and the December print is expected to be just off that figure at 67.0, indicating a vibrant services-side of the economy continued in December.

Source: Bloomberg

5. December FOMC Meeting Minutes – Wednesday

The hawkish tone of the December FOMC meeting was unequivocal but the minutes will still be examined for any clues as to when the first rate hike might come. With the accelerated tapering schedule set to finish in March the market has put 66% odds of a rate hike at that meeting. We think it more likely will come in June but certainly the economic performance and the virus impact will certainly weigh heavily on the March versus June decision.


Yield Universe

Source: SouthState Bank Fixed Income Trading Desk

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Published: 01/03/22 Author: Thomas R. Fitzgerald