Budget, Infrastructure, and Debt Ceiling Drama

While yields seek a higher equilibrium level the market will also be keeping an eye out on the discussions in Congress over the fate of President Biden’s budget and infrastructure bills, along with any movement in the debt ceiling drama. House Democratic progressives are demanding that the larger $3.5 trillion budget bill be voted on first before the smaller bipartisan infrastructure bill as it contains more of their priorities in social spending, etc.. So far that is causing consternation among a couple moderate Democratic senators that are balking at the budget bill’s $3.5 trillion price tag. Expect some headway to be made here as surely the Democratic Congress won’t want to imperil Biden’s legislative agenda, would they? In addition, a full rostrum of Fed speakers will be in force this week from Fed Chair Powell on down so expect a constant barrage of headlines that may create some trading turbulence.

Also, the debt ceiling drama will probably build this week as a supposed mid-October deadline looms. If we move through the week without a breakthrough expect Treasury Bills to start trading more nervously. Away from the congressional headlines, expect personal income and spending numbers on Friday to headline the week’s economic releases. Spending is expected to bounce higher after a decent July so that bodes well for third quarter consumption and GDP. The core PCE is expected to be up 0.2% for the month versus 0.3% in July and 3.6% YoY, matching July’s result.


Treasuries

Treasury Curve Today Week Change
3 Month 0.03% Unchanged
6 Month 0.04% Unchanged
1 Year 0.07% Unchanged
2 Year 0.28% +0.06%
3 Year 0.56% +0.10%
5 Year 0.98% +0.15%
10 Year 1.50% +0.18%
30 Year 2.01% +0.15%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.13%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.23%
Swap Rates  
3 Year 0.682%
5 Year 1.077%
10 Year 1.517%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Sep 27 Durable Goods Orders Aug 0.7% 0.7% -0.1%
Sep 27 Durables Ex Transportation Aug 0.5% 0.5% 0.8%
Sep 28 Advance Goods Trade Balance Aug -$87.3b -$87.3b -$86.4b
Sep 28 S&P CoreLogic CS 20-City Home Prices (YoY) Jul 20.00% 20.00% 19.08%
Sep 28 Conference Board Consumer Confidence Sep 115.0 115.0 113.8
Oct 1 Personal Income Aug 0.2% 0.2% 1.1%
Oct 1 Personal Spending Aug 0.6% 0.6% 0.3%
Oct 1 Core PCE (MoM) Aug 0.2% 0.2% 0.3%
Oct 1 ISM Manufacturing Sep 59.5 59.5 59.9

 


Top 5 Events for the Week

September 27—October 1, 2021

1.  Budget, Infrastructure and Debt Ceiling Discussions— All Week

The market will be keeping one eye out on the discussions in Congress this week over the fate of President Biden’s budget and infrastructure bills, along with any movement in the debt ceiling drama. House Democratic progressives are demanding that the larger $3.5 trillion budget bill be voted first before the smaller bipartisan infrastructure bill as it contains more of their priorities in social spending, etc.. So far that is causing some consternation among a couple moderate Democratic senators that are balking at the budget bill’s $3.5 trillion price tag. Expect some headway to be made here as surely the Democratic Congress won’t want to imperil Biden’s legislative agenda, would they? Also, the debt ceiling drama will probably build this week as a supposed October deadline looms. If we move through the week without a breakthrough expect Treasury bills to start trading more nervously.

2.  August Personal Income and Spending- Friday

The personal income and spending numbers are 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 August, personal income is expected to increase  0.2% versus 1.1% in July.  Personal spending, meanwhile, is expected to have increased 0.6% versus 0.3% in July.  The all important inflation number in the report that the Fed prefers (Core PCE) is expected to increase 0.2% MoM versus 0.3% in July and 3.6% YoY matching the July print. After the FOMC meeting last week and the economic and rate forecasts its more clear that the Fed won’t sit idly by and let inflation continue at 3+% levels, as they pushed forward a rate hike into 2022 and forecast inflation moving lower in 2022 to 2.3% by year-end. It’s too early to expect a move lower for August but the expected sequential dips in the monthly numbers will be appreciated by the Fed.

3. September 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 rose slightly after a decade-low drop in August so this reading will take on added significance to further assess if confidence is bouncing after a soft August.  The Conference Board’s confidence reading is expected to tick up to 115.0 versus 113.8 in August.  Consumer confidence this year peaked in June at 128.9 but has been drifting lower as inflation and delta variant cases dominated news headlines.  The expected slight bounce will be greeted as a positive result for fourth quarter spending.

Source: Bloomberg

4. August Durable Goods Orders—Monday

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 August, orders are expected  to increase 0.7% versus -0.1% in July. Orders less the volatile transportation sector are expected to increase 0.5% versus 0.8% in July. Thus, expectations are that the durable goods side of the economy will post another solid result for August with little sign of softening.

5. September ISM Manufacturing Index -Friday

With the September employment report not due until October 8th the ISM Manufacturing Index will be the first to give us insight into September activity. The index is expected to post 59.5 versus 59.9 in August indicating the manufacturing sector is still 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 of a lack of parts, namely chips for autos. With those shortages still weighing on the sector sub-60 prints are likely but looking through those temporary shortages the sector still seems very healthy.


Yield Universe

Source: SouthState Bank Trading Desk

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Published: 09/24/21 Author: Thomas R. Fitzgerald