September CPI, Retail Sales and Plenty of Fed Speak

A couple first-tier economic releases will likely garner attention from traders this week with a good dose of Fed news to keep the headlines flowing.  First, the September CPI numbers will be released tomorrow and it’s expected to be mostly a placeholder month with little movement up or down from the numbers posted in August. Overall CPI is expected to increase 0.3% in September matching the August uptick which will keep the year-over-year number at 5.3%. The core rate is expected to increase 0.2% after the 0.1% gain in August, while the year-over-year rate remains stuck at 4.0% for a second straight month. Treasury investors are losing a bit of patience with the Fed’s “transitory” argument as TIPS inflation breakeven rates have moved higher to levels last seen in May when inflation fears spiked. If price gains exceed forecasts expect Treasury yields to continue higher.

The second report that will get investor attention will be the September retail sales numbers due Friday. Expectations are for a decent showing but off the surprisingly strong August numbers.  Finally, FOMC minutes, and numerous Fed speakers, will create some headlines for investors. The minutes will be scoured for comments and conviction on tapering along with the level of inflation concern. Eight Fed officials will be speaking this week so we’ll also get a read on their impression of the jobs report and it’s potential impact on near-term policy.


Treasuries

Treasury Curve Today Week Change
3 Month 0.05% +0.02%
6 Month 0.06% +0.01%
1 Year 0.09% +0.02%
2 Year 0.34% +0.07%
3 Year 0.61% +0.12%
5 Year 1.08% +0.14%
10 Year 1.61% +0.12%
30 Year 2.14% +0.08%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.25%
Swap Rates  
3 Year 0.759%
5 Year 1.163%
10 Year 1.630%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Oct 12 NFIB Small Biz Optimism Sep 99.5 99.1 100.1
Oct 12 JOLTS Job Openings Aug 10.938m 10.954m 10.934m
Oct 13 CPI (MoM) Sep 0.3% 0.3% 0.3%
Oct 13 CPI (YoY) Sep 5.3% 5.3% 5.3%
Oct 13 Core CPI (MoM) Sep 0.2% 0.2% 0.1%
Oct 13 Core CPI (YoY) Sep 4.0% 4.0% 4.0%
Oct 13 FOMC Minutes Sep NA NA NA
Oct 15 Advance Retail Sales Sep -0.2% -0.2% 0.7%
Oct 15 U. of Mich. Sentiment Oct P 73.5 73.4 72.8

 


Top 5 Events for the Week

October 12 – 15, 2021

1.  September CPI Report— Wednesday

With the September jobs numbers posting some outsized wage gains, investors will be casting a weary eye on the CPI numbers. Much has been made of the supply-side cost increases but if the above average wage gains start to fuel higher demand the Fed will have to recast the “transitory” messaging.  For September, overall CPI is expected to increase  0.3% matching the prior month’s gain. The core rate (ex-food and energy) is expected to increase 0.2% versus the 0.1% pace in August.  Overall CPI (YoY) is expected to remain at   5.3% for a second straight month. Core CPI (YoY) is expected to tick up to 4.1% from August’s 4.0%. The rate peaked at 4.5% in June.

The Treasury TIPs inflation breakeven rates have been rising since late September with the 10yr breakeven inflation rate at 2.52%, a level last seen in May when inflation fears were spiking. Investors appear to be recognizing a stickier inflation scenario and that could drive the Fed to continue moving forward its expected lift-off date for rate hikes.

2.  September Retail Sales Report- Friday

With the impact of the delta variant fading during the month, the latest retail sales numbers will be examined for signs that the consumer headed out to shop in large numbers, and whether the surprising bounce in August was a one-off or the start of a trend.  For the month, retail sales are expected to have decreased –0.2% versus a 0.7% increase in August. Sales ex-auto and gas are expected to have increased 0.3% versus a 2.0% surge in August. The retail sales control group—a direct feed into GDP—is expected to post a  0.5% increase versus a 2.5% surge in August. All-in-all, the read on retail sales is expected to be solid but off the surprising gains experienced in August.

Current Bloomberg consensus for third quarter GDP is 4.8% QoQ annualized versus 6.6% in the second quarter as consumer spending is expected to slow to 2.2% versus a stimulus check-induced pop of 11.9% in the second quarter.

3. September FOMC Minutes and Other Fed Speak – Wednesday

We get the FOMC minutes from September’s meeting tomorrow and the focus will be on two things: the conviction to move forward with a tapering announcement in November and the concern over the stickiness of inflation, especially with the recent increases in energy prices. The September jobs report’s stronger than expected wage gains also provide another vector for higher prices should fatter wallets lead to increased spending and demand. There will be other Fed news as eight speakers will provide headlines during the week. We should get a pretty good read on Fed official’s thoughts on the jobs numbers and the impact it may have on near-term policy decisions.

4. August Job Openings and Labor Turnover Survey—Tuesday

The September jobs reports was the second in a row that probably added more noise than signal in regards to the health and direction of the labor market so once again the JOLTS Survey will be another data  point that investors will look at in assessing the health of the labor market.  Expectations are that job openings will set another record high of 10.954 million from 10.934 million in July.

The real issue is that with around 10 million unfilled job openings and the expiration of supplementary unemployment benefits in early September why was the September jobs headline number disappointingly low? Perhaps it was just too early to be a factor as the surveys for the jobs numbers occur in the second week of the month. In any event, most job-related reports are quite positive and it’s just the BLS that seems out of step. Eventually, they should align but it obviously will take some more time.

5. October Preliminary University of Michigan Consumer Sentiment -Friday

Two-thirds of the US economy is consumption-based so gauging consumer sentiment is crucial to determining how they feel about spending. Sentiment took a huge hit in August as inflation expectations and rising virus cases sent sentiment to a decade low reading.  Sentiment crept higher in September but not by much. The Bloomberg consensus is for sentiment to be slightly better in October at 73.4 versus 72.8 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 4.6% in August for the 1yr outlook and to 3.0% in the 5-10yr outlook.

 

Source: Bloomberg

Yield Universe

Source: SouthState Bank Trading Desk

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Published: 10/08/21 Author: Thomas R. Fitzgerald