Markets Reconsider Worst Case Virus Scenario

Investors are reconsidering the worst case virus scenario from the new South African variant and that has Treasuries giving back some of their gains from Friday and stocks looking to recapture some  of the losses suffered that day.

South African health experts, including the doctor who first went public with news of the variant, indicated that symptoms linked to the virus strain have been mild so far. The World Health Organization urged caution but traders are already doubting the more severe of the possible economic scenarios tied to the virus. 10-year Treasury yields are back to 1.56% after ending Friday at 1.48% as traders feared the worst. The Dow is opening a bit higher after losing 900 points Friday.

Away from the virus intrigue the week will be headlined by the November jobs report on Friday. Expectations are for a near repeat of the solid October report with 535 thousand new jobs expected and the unemployment rate dipping to 4.5% from 4.6%. If the report is close to forecasts it will put more pressure on the Fed to consider accelerating the tapering time line at the December 15 FOMC meeting.


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% -0.01%
6 Month 0.09% +0.03%
1 Year 0.19% +0.04%
2 Year 0.54% Unchanged
3 Year 0.85% -0.04%
5 Year 1.22% -0.03%
10 Year 1.56% -0.02%
30 Year 1.90% -0.04%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.18%
6 Mo LIBOR 0.25%
12 Mo LIBOR 0.41%
Swap Rates  
3 Year 1.072%
5 Year 1.333%
10 Year 1.610%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Nov 29 Pending Home Sales (MoM) Oct 1.0% 1.0% -2.3%
Nov 30 S&P CoreLogic 20-City Home Price Chg. (YoY) Sep 19.30% 19.30% 19.66%
Nov 30 Conf. Board Consumer Confidence Nov 110.4 110.4 113.8
Dec 1 ISM Manufacturing Nov 61.1 61.1 60.8
Dec 3 ISM Services Nov 65.0 65.0 66.7
Dec 3 Change in Nonfarm Payrolls Nov 535k 535k 531k
Dec 3 Unemployment Rate Nov 4.5% 4.5% 4.6%
Dec 3 Avg. Hourly Earnings (YoY) Nov 5.0% 5.0% 4.9%
Dec 3 Labor Force Participation Rate Nov 61.7% 61.7% 61.6%

 


Top 5 Events for the Week

November 22 – 24, 2021

1.  Investors Reconsider Worst-Case Virus Scenario— All Week

Investors are reconsidering the worst case virus scenario from the new South African variant and that has Treasuries giving back some of their gains from Friday and stocks looking to recapture some  of the losses suffered that day. South African health experts, including the doctor who first went public with news of the variant, indicated that symptoms linked to the virus strain have been mild so far. The World Health Organization urged caution but traders are already doubting the more severe of the possible economic scenarios tied to the virus. 10-year Treasury yields are back to 1.55% after ending Friday at 1.48% as traders feared the worst. The Dow is expected to open 200 points higher after losing 900 points Friday.

2.  November Employment Report – Friday

Accelerating the tapering schedule is already on the agenda for the December 15 meeting but a solid November jobs report will only add momentum to Team Accelerate.   The November expectation is for a gain of 535 thousand jobs versus 531 thousand in October with the unemployment rate dropping from 4.6% to 4.5%.  The broader underemployment rate continued lower in October dipping to 8.3% but it was as low as  6.8% in December 2019 and that is what the Fed will be looking to get back to before hailing the recovery as complete. Also, the Labor Force Participation rate rose a tenth in October to 61.7%. It was 63.4% prior to the pandemic so many people remain outside the workforce compared to pre-pandemic levels. This is something else the Fed will want to see improve before launching rate hikes.

3. November ISM Manufacturing Index – Wednesday

The ISM Manufacturing Index will be the first to give us insight into November activity with the reports release due on Wednesday. The index is expected to post 61.1 versus 60.8 in October indicating the manufacturing sector is expected to remain in solid expansionary territory which has been the case since June 2020. The latest readings have plateaued around the 60-level but some of that is from a lack of parts, namely chips for autos. With supply-chain issues still weighing on the sector these 60-level prints are likely to continue but looking through those temporary shortages the sector still seems very healthy.

4. November ISM Services Index—Friday

Markets have been waiting for a hand-off from the goods side of the economy to the services side and the previous ISM Services numbers showed that, as did the recent GDP numbers.  The October print hit an all-time high and the November print is expected to be just off that figure at 65.0 versus 66.7 in October, indicating a vibrant services-side of the economy.

Source: Bloomberg

5. November Consumer Confidence – Tuesday

With two-thirds of the economy consumption-based it’s always important to look at the confidence of the consumer for tells on future spending and hence GDP.  With both the University of Michigan Sentiment reading and the Conference Board’s measure struggling of late, the somewhat sour outlook hasn’t dented consumers willingness to spend and that’s the important point. The Conference Board’s confidence reading is expected to tick down to 110.7 versus 113.8 in October.  Consumer confidence this year peaked in June at 128.9.


Yield Universe

Source: SouthState Bank Trading Desk

Securities offered through the SouthState Bank Correspondent Division ("SouthState") 1) are not FDIC insured, 2) not guaranteed by any bank, and 3) may lose value including a possible loss of principal invested. SouthState does not provide legal or tax advice. Recipients should consult with their own legal or tax professionals prior to making any decision with a legal or tax consequence. The information contained in the summary was obtained from various sources that SouthState believes to be reliable, but we do not guarantee its accuracy or completeness. The information contained in the summary speaks only to the dates shown and is subject to change with notice. This summary is for informational purposes only and is not intended to provide a recommendation with respect to any security. In addition, this summary does not take into account the financial position or investment objectives of any specific investor. This is not an offer to sell or buy any securities product, nor should it be construed as investment advice or investment recommendations.

Tags: Published: 11/29/21 by Thomas R. Fitzgerald