Market Looking Ahead to FOMC Meeting Next Week

This week is thin on market-moving economic releases, and it’s also thin on Fed headlines as officials have gone into radio silence prior to next week’s FOMC meeting. That’s not to say the holiday-shortened week is completely devoid of data, as some housing numbers will make an appearance and the Empire Manufacturing survey for January kicks off the week’s releases today. Most of the reports this week are expected to be solid, if unspectacular. That combination of second-tier data, most likely of the so-so variety,  and a Fed that has gone quiet for the week, should leave Treasuries to range-trade while marking time until the January 26 FOMC Meeting.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.12% +0.03%
6 Month 0.31% +0.08%
1 Year 0.50% +0.09%
2 Year 1.01% +0.13%
3 Year 1.32% +0.15%
5 Year 1.60% +0.08%
10 Year 1.81% +0.03%
30 Year 2.13% Unchanged

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.24%
6 Mo LIBOR 0.40%
12 Mo LIBOR 0.73%
Swap Rates  
3 Year 1.477%
5 Year 1.688%
10 Year 1.874%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Jan 18 Empire Manufacturing Jan 25.0 25.0 31.9
Jan 18 NAHB Housing Market Index Jan 84 84 84
Jan 19 Building Permits (MoM) Dec -1.0% -1.0% 3.9%
Jan 19 Building Permits Dec 1700k 1700k 1717k
Jan 19 Housing Starts Dec -1.7% -1.7% 11.8%
Jan 19 Housing Starts Dec 1650k 1650k 1679k
Jan 20 Existing Home Sales Dec 6.41m 6.41m 6.46m
Jan 20 Philly Fed Biz Outlook Jan 19.8 19.8 15.4
Jan 21 Leading Index Dec 0.8% 0.8% 1.1%

 


Top 5 Events for the Week

January 18 – 21, 2022

1.  January Empire Manufacturing — Tuesday

This week is thin on market-moving economic releases, and it’s also thin on Fed headlines as officials have gone into radio silence prior to next week’s FOMC meeting. That’s not to say the holiday-shortened week is completely devoid of data as some housing numbers will make an appearance and the Empire Manufacturing survey for January kicks off the week’s releases. The New York Fed’s manufacturers are expected to post a 25.0 reading after a solid 31.9 result in December. The manufacturing sector spiked to a high reading of 43.0 back in July but has managed to hold most of that momentum. It’s no secret that consumers have focused their purchases on hard goods versus services over the past year and that pattern looks to continue for the most part into January.

2.  December Housing Starts and Permits – Wednesday

December housing data starts to roll in this week with housing starts and permits kicking off the action tomorrow Starts are expected to decrease –1.7% to 1.650 million units annualized versus November’s solid 11.8% increase, or 1.679 million units, annualized. Meanwhile, permits are expected to also be down slightly from November decreasing by –1.0% to 1.700 million annualized versus 1.717 million the prior month.

Source: Bloomberg

3. December Existing Home Sales – Thursday

Existing home sales—accounting for 90% of the residential market— are expected to be down slightly from November’s solid results. The December print is expected to  see sales decrease –0.8% month-over-month to 6.41 million houses from 6.46 million in November, on an annualized basis. It looks like scarce inventory, rapid price appreciation, and recent increases in mortgage rates are being handled as sales are set for monthly increases in three out of the last four months. For the last 15 months, sales have ranged between 6.00 million annualized and 6.73 million, but prior to the pandemic sales routinely averaged 5.50 million annualized, so clear evidence the housing market remains a hot sector despite the aforementioned challenges.

4. January Philly Fed Business Outlook— Thursday

Consumer sentiment measures have been depressed of late, despite solid economic and job growth numbers, due to red-hot inflation figures. We had mentioned previously that despite the sour mood of many consumers, they had been spending much more than their depressed attitudes would have let on. That is until the December retails sales numbers that trailed in almost every category. We’ll have to see if that is merely consumption delayed until January, or consumption curtailed. Meanwhile, the Philly Fed’s Business Outlook Survey is expecting a modest rebound in January after a so-so outlook in December. Expectations are for a reading of 19.8 versus 15.4 in December.  The survey of business contacts hit a 12-month high last April at 50.2,  but last month’s 15.4 was the lowest reading since December 2020’s 11.1. Is the inflation story dimming the outlook of business contacts as well?

5. December Leading Index – Friday

The Leading Index is a gauge of nearly 80 variables that tend to move before the overall economy giving an early indication of economic direction.  Any reading below zero constitutes a soon-to-be contracting economy while above zero reflects an expanding economy. For December, the index is expected to move higher by 0.8% versus 1.1% in November. Thus, the Leading Index is expected to reflect an economy continuing its growth trajectory with little sign of imminent contraction.


Yield Universe

 

Source: SouthState Bank Fixed Income Trading Desk

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Tags: Published: 01/17/22 by Thomas R. Fitzgerald