Investors Focused on Wednesday’s FOMC Meeting

Quarter-end FOMC meetings always carry a bit more drama than other meetings, even when a change in rates or policy are not expected, and this meeting should be no different. With refreshed economic forecasts and the infamous dot plots the meeting will provide plenty of information for investors to chew on.  Add in a little intrigue over possible tapering details being released and the meeting becomes one of the biggest of the year. While the modest August CPI numbers sent taper talk odds lower, the subsequent better-than-expected retail sales numbers restored some of those odds.

We still believe the November meeting will be the venue to unveil tapering details but the sudden uncertainty adds drama to the meeting. As for the forecasts, we think some of the enthusiasm in the June economic expectations will be taken down a bit owing to the upsurge in delta variant virus cases since June. Also, we don’t expect any material near-term change to the dot plot of expected fed funds rates with two hikes still expected in 2023. We will, however, get a first look at 2024 with three or four rate hikes most likely penciled in. Away from the Fed the week is full of housing-related reports with all likely to show some plateauing in activity but at a still solid level.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.03% -0.01%
6 Month 0.04% -0.01%
1 Year 0.07% Unchanged
2 Year 0.22% Unchanged
3 Year 0.46% +0.01%
5 Year 0.83% +0.01%
10 Year 1.32% -0.02%
30 Year 1.86% -0.06%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.15%
12 Mo LIBOR 0.22%
Swap Rates  
3 Year 0.579%
5 Year 0.937%
10 Year 1.362%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Sep 21 Housing Starts Aug 1.0% 1.0% -7.0%
Sep 21 Building Permits Aug -2.0% -2.0% 2.3%
Sep 22 Existing Home Sales Aug -1.9% -1.9% 2.0%
Sep 22 FOMC Rate Decision Sep 22 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Sep 23 Initial Jobless Claims Sep 18 320k 320k 332k
Sep 23 Markit US Composite PMI Sep P NA NA 55.4
Sep 23 Leading Index Aug 0.5% 0.6% 0.9%
Sep 24 New Home Sales (MoM) Aug 0.0% 0.0% 0.0%
Sep 24 New Home Sales Aug 708k 710k 708k

 


Top 5 Events for the Week

September 20—24, 2021

1.  FOMC Rate Decision— Wednesday

Quarter-end FOMC meetings always carry a bit more drama than other meetings, even when a change in rates or policy are not expected, and this meeting should be no different. With refreshed economic forecasts, and the infamous dot plots, the meeting will provide plenty of information for investors to chew on. Add in a little intrigue over possible tapering details being released and the meeting becomes one of the biggest of the year. While the modest August CPI numbers took odds of taper talk lower, the subsequent better-than-expected retail sales numbers restored those odds. We still believe the November meeting will be the venue to unveil tapering details but the sudden uncertainty adds a bit of drama to the meeting. As for the forecasts, we think some of the ebullience in the June economic expectations will be taken down a bit owing to the upsurge in delta variant virus cases since June. Also, we don’t expect any material change to the dot plot of expected fed funds rates with two hikes expected in 2023. We will, however, get a first look at 2024 with three rate hikes most likely penciled in.

2.  August Housing Starts and Permits- Tuesday

This week is chock full of August housing data starting with starts and permits tomorrow. Starts are expected to increase 1.0% to 1.550 million units annualized versus July’s disappointing –7.0% drop, or 1.534 million units, annualized. Meanwhile, permits are expected to be down slightly from July decreasing by 1.8% to 1.600 million annualized versus 1.630 million the prior month. After a soft patch in the first half of 2021, with price hikes and limited inventory suppressing the numbers, housing starts and permits are expected to remain solid as another dip in  mortgage rates and below-peak lumber prices boost additional sales.

3. August Existing Home Sales —Wednesday

Existing home sales—accounting for 90% of the residential market— are expected to be down slightly from July’s results. The August print is expected to  see sales decrease –2.0% month-over-month to 5.87 million houses from 5.99 million in July, on an annualized basis.   Scarce inventory and rapid price appreciation have created a modest headwind to the housing sector but activity remains solid.

4. August Leading Index—Thursday

The Leading Index-a gauge of nearly 80 variables that tend to move before the overall economy– plumbed new depths 18 months ago, as one would expect, but rebounded smartly in the summer of 2020 only to drift lower into year-end as virus case counts started spiking again and it has been largely drifting in 2021 mimicking the ebb and flow of virus numbers. Any reading below zero constitutes a soon-to-be contracting economy while above zero reflects an expanding economy. For August, the index is expected to tick lower to  0.6% versus 0.9% in July. Thus, the Leading Index is expected to reflect an economy continuing its growth trajectory but with some signs of moderation to that growth profile.

Source: Bloomberg

5. August New Home Sales -Friday

While new home sales only account for about 10% of the housing market they do bring with it all the elements that go into the construction of a home and so it is an important input to GDP and also to the health of the housing market. For the month of August, sales are expected to nearly replicate July’s activity that bounced a tad higher after May and June’s bout of softness.  Sales are expected to be nearly unchanged month-over-month at 710,000 units sold on an annualized basis versus July’s  708,000 pace. This is in keeping with the other housing-related reports that are showing a plateauing of sorts in activity but at a still brisk level.


Yield Universe

Source: SouthState Bank Trading Desk

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Published: 09/20/21 Author: Thomas R. Fitzgerald