December CPI Headlines Busy Week

While the December jobs report posted solid numbers, probably more important to the Fed’s intentions to possibly hike in March will be what the inflation numbers do between now and then. December CPI will be the first inflation report since last month’s FOMC meeting.  Expectations are that price pressures will remain firmly in place, and that should be enough to stoke the Fed’s rate-hiking desires,  increasing the odds for hiking sooner rather than later (i.e., March vs. June).

Fed speak will dot the calendar this week with at least six officials scheduled to talk. Those that come after the Wednesday CPI report will surely offer some thoughts on what those numbers may mean for monetary policy.

Meanwhile, the Treasury will be busy this week selling plenty of new debt. It will be informative to see how $52 billion in 3-year notes, $36 billion in 10-year notes, and $22 billion in 30-year bonds are put away after the recent bout of selling. Struggles in selling the debt could portend still higher yields, while solid demand may signal a period of consolidation is upon us.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.09% +0.03%
6 Month 0.23% +0.04%
1 Year 0.41% +0.02%
2 Year 0.87% +0.08%
3 Year 1.17% +0.15%
5 Year 1.52% +0.18%
10 Year 1.78% +0.20%
30 Year 2.13% +0.16%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.24%
6 Mo LIBOR 0.38%
12 Mo LIBOR 0.66%
Swap Rates  
3 Year 1.380%
5 Year 1.626%
10 Year 1.856%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jan 11 NFIB Small Biz Optimism Dec 98.7 98.5 98.4
Jan 12 CPI (MoM) Dec 0.4% 0.4% 0.8%
Jan 12 Core CPI (MoM) Dec 0.5% 0.5% 0.5%
Jan 12 CPI (YoY) Dec 7.1% 7.0% 6.8%
Jan 12 Core CPI (YoY) Dec 5.4% 5.4% 4.9%
Jan 12 Retail Sales Dec -0.1% -0.1% 0.3%
Jan 12 Retail Sales Control Group Dec 0.3% 0.1% -0.1%
Jan 14 U. of Mich. Sentiment Jan 70.0 70.0 70.6
Jan 14 U. of Mich. Expectations Jan 67.0 67.0 68.3

 


Top 5 Events for the Week

January 10 – 14, 2022

1.  December CPI Report — Wednesday

While the December jobs report posted solid numbers, probably more important to the Fed’s intentions to possibly hike in March will be what the inflation numbers are doing between now and then. The December CPI Report will be the first since the FOMC meeting.  Expectations are that price pressures will remain firmly in place, and that should be enough to stoke the Fed’s rate-hiking desires. For the month, overall CPI is expected to have increased  0.4% versus 0.8% the prior month. The core rate (ex-food and energy) is expected to have increased 0.5% matching the November increase.   Overall CPI (YoY) is expected to have risen to 7.0% from 6.8% in November. Core CPI (YoY) is expected to have risen to 5.4% from the prior month’s 4.9%. If the numbers come as expected it will likely buttress the argument for hiking sooner rather than later (i.e., March vs. June).

Source: Bloomberg

2.  December Retail Sales Report – Wednesday

After CPI, the next biggest report for the week will be December Retail Sales. For the month, retail sales are expected to have decreased -0.1% versus November’s 0.3% increase. Sales ex-auto and gas are expected to have decreased -0.1% versus a 0.2% gain the prior month. The retail sales control group—a direct feed into GDP—is expected to post a skinny 0.1% increase versus a disappointing –0.2% decline in November.  All-in-all, the read on retail sales is expected to be mixed, but that comes after a four month run of impressive sales. In any event, the mixed results aren’t likely to dim fourth quarter GDP estimates.   The current Bloomberg consensus for fourth quarter GDP is 6.0% QoQ annualized versus 2.3% in the third quarter as consumer spending is expected to rebound to 5.3% growth versus a disappointing 2.0% increase in the third quarter.

3. Preliminary Univ. of Michigan Consumer Sentiment for January – Friday

Sentiment rebounded a bit in December after inflation expectations sent it to a decade low reading the prior month.  There is, however, a stark divide between sentiment readings for Republicans and Democrats in the survey as the political divide infects another aspect of our daily lives. The Bloomberg consensus is for sentiment to be mostly unchanged in January at 70.0 versus 70.6 the prior month. Sentiment peaked at 101 in February 2020 so we have plenty of work to get back to pre-pandemic levels. Inflation expectations will be watched closely too as they remain uncomfortably high at 4.8% in December for the 1-year outlook and 2.9% in the 5-10 year outlook.

4. Fed Speak —All Week

The FOMC minutes from the December meeting stole the show last week as talk of moving quickly to balance sheet  run-off put equities under pressure and also lifted Treasury yields across the curve. This week we have at least six Fed officials who will be speaking and offering their opinions on the latest numbers, including the jobs report. Tomorrow, Fed Chair Powell will have his nomination hearing before the Senate Banking Committee. Expect inflation questions to come before him in that meeting. Those that speak on Wednesday, or later, will also have the latest inflation numbers in hand in which to provide commentary on how it may impact future policy moves.

5. Treasury Auctions 3yr, 10yr, and 30yr Debt – Tuesday, Wednesday, Thursday

The sell-off in Treasuries across the curve will get put to another test this week as the Treasury auctions $110 billion in three different tenors. The selling starts tomorrow with $52 billion in 3-year notes, $36 billion in 10-year notes on Wednesday, and $22 billion in 30-year bonds on Thursday. Market-observers, curious about how high yields can go, will be watching the auctions to gauge investor appetite for securities at the highest yields in nearly a year. If the auctions struggle it could signal still higher yields on the horizon. If the auctions are well received, however, it could signal a period of consolidation after the recent run-up.


Yield Universe

Source: SouthState Bank Fixed Income Trading Desk

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Tags: Published: 01/10/22 by Thomas R. Fitzgerald