FOMC Tapering Decision Headlines the Week

All eyes will be on the Wednesday afternoon announcement from the Fed on whether they will accelerate the pace of QE tapering. While that is likely to occur, the meeting won’t stop there with providing a couple other news-making items. It’s expected the tapering pace will be doubled, starting in January. That would complete the process after March when the Fed would then begin the pivot towards rate hikes. That’s where the other bits of information come in.

The Fed will update their rate and economic forecasts and we’ll get a peek at how aggressive the Fed thinks they will need to be to rein in inflation. The market is expecting nearly three hikes next year while in September the Fed was evenly split over none or one hike. That will get bumped up most likely to two hikes in 2022. Expect the economic forecasts to be adjusted too with inflation running hotter, unemployment falling faster, and GDP in the 5.5% to 6.0% range for 2022.


Treasuries

Treasury Curve Today Week Change
3 Month 0.05% +0.01%
6 Month 0.12% +0.03%
1 Year 0.25% Unchanged
2 Year 0.67% +0.07%
3 Year 0.99% +0.12%
5 Year 1.25% +0.09%
10 Year 1.47% +0.10%
30 Year 1.85% +0.16%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.20%
6 Mo LIBOR 0.29%
12 Mo LIBOR 0.51%
Swap Rates  
3 Year 1.145%
5 Year 1.347%
10 Year 1.547%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Dec 14 NFIB Small Business Optimism Nov 98.4 98.4 -98.2
Dec 14 PPI (YoY) Nov 9.2% 9.2% 8.6%
Dec 14 PPI Ex-Food, Energy, Trade (YoY) Nov 6.8% 6.8% 6.2%
Dec 15 Empire Manufacturing Dec 25.0 25.0 30.9
Dec 15 Retail Sales (MoM) Nov 0.8% 0.8% 1.7%
Dec 15 FOMC Rate Decision Dec 15 0.00%-0.25% 0.00%-0.25% 0.00-0.25%
Dec 16 Housing Starts (MoM) Nov 3.2% 3.0% -0.7%
Dec 16 Building Permits (MoM) Nov 0.4% 0.4% 4.2%
Dec 16 Industrial Production (MoM) Nov 0.7% 0.7% 1.6%

 


Top 5 Events for the Week

December 13 – 17, 2021

1.  FOMC Meeting— Wednesday

All eyes will be on the Wednesday afternoon announcement (2pm ET) from the Fed on whether they will accelerate the pace of QE tapering. While that is likely to occur, the meeting won’t stop there with providing a couple other news-making items. It’s expected the tapering pace will be doubled from $15 billion per month to $30 billion per month starting in January. That would complete the tapering process after March when the Fed would then pivot towards rate hikes. That’s where the other bits of information come in. The Fed will update their rate and economic forecasts at this meeting and we’ll get a peak at just how aggressive the Fed thinks they will need to be to begin reining in inflation. The market is expecting nearly three hikes in  2022 while in September the Fed was evenly split between no hikes and one. That will get bumped up most likely to two hikes in 2022. Expect the economic forecasts to be adjusted too with inflation running hotter, unemployment falling faster, and GDP in the 5.5% to 6.0% range for 2022.

2.  November Retail Sales – Wednesday

Wednesday will be a big day for the market. Before the FOMC rate decision in the afternoon we’ll get November retail sales numbers in the morning. For the month, retail sales are expected to have increased 0.8% versus October’s solid 1.7%. Sales ex-auto and gas are expected to increase 0.8% versus a 1.4% gain in October. The retail sales control group—a direct feed into GDP—is expected to post a  0.8% increase versus a strong 1.6% gain in October.  All-in-all, the read on retail sales is expected to be the fourth solid month in a row, albeit a bit off from October’s stellar numbers. In any event it should buoy fourth quarter GDP estimates.   The current Bloomberg consensus for fourth quarter GDP is 5.0% QoQ annualized versus 4.9% in the third quarter as consumer spending is expected to rebound to 4.1% versus a disappointing 1.7% in the third quarter.

3. November Housing Starts and Permits – Thursday

November housing data starts to roll in this week with housing starts and permits kicking off the action on Thursday. Starts are expected to increase 3.0% to 1.566 million units annualized versus October’s softish –1.6%, or 1.520 million units, annualized. Meanwhile, permits are expected to also be up from October increasing by 0.4% to 1.660 million annualized versus 1.653 million the prior month. After a soft patch in September, housing starts and permits are expected to continue the rebound seen in October with solid starts and permits indicating housing continues to hit on all cylinders.

4. November PPI—Tuesday

While the November CPI has taken all the air out of the room in regards to inflation reports, tomorrow’s November PPI will leave us with another indication of just how much wholesale prices are climbing. The overall for the month is expected to increase 0.4% which would match the print in October. Ex-food, energy and trade the monthly gain is expected to also clock in at 0.4%, again matching the prior month’s increase. On a year-over-year basis, the numbers are a bit staggering. The overall is expected to move from 8.6% to 9.2% while the ex-food, energy and trade core number is expected to move to 6.8% from 6.2%.

Source: Bloomberg

5. November Industrial Production – Tuesday

The manufacturing side of the economy has done exceedingly well since the earliest days of the pandemic, except for various supply-chain challenges. While a hand-off is happening to the services-side of the economy as virus cases recede, the industrial production/goods side of the economy continues to do just fine.  For November, industrial production is expected to gain 0.7% versus 1.6% in October. Capacity Utilization is expected to edge up to 76.8% versus 76.4% in October. Manufacturing production is expected to increase 0.6% versus 1.2% the prior month. All-in-all, another solid showing is expected on the manufacturing/goods side of the economy.


Yield Universe

Source: SouthState Bank Fixed Income Trading Desk

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Tags: Published: 12/13/21 by Thomas R. Fitzgerald