November CPI Will Headline a Sparse Week of Data

The economic calendar is light this week and the Fed has gone into radio silence mode prior to next week’s FOMC meeting. That leaves the biggest event of the week on Friday with the release of the November CPI Report. While last Friday’s jobs report for November was on the mediocre side, more important to the accelerating taper cause will be the inflation numbers, and they are expected to be hot, with the core rate forecast to be the highest in 30 years at 4.9% YoY. That report, if it comes as expected, will add to the momentum to accelerate tapering of bond purchases.

Meanwhile, the Treasury will be busy this week selling plenty of new debt, and with the recent rally in longer-term yields it will be informative to see how $36 billion in 10-year notes are put away on Wednesday and $22 billion in 30-year bonds on Thursday. If anything, the looming auctions will likely keep any rallies earlier in the week on a short leash until the debt is sold.


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% Unchanged
6 Month 0.09% Unchanged
1 Year 0.25% +0.06%
2 Year 0.60% +0.06%
3 Year 0.87% +0.02%
5 Year 1.16% -0.06%
10 Year 1.37% -0.19%
30 Year 1.69% -0.21%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.19%
6 Mo LIBOR 0.27%
12 Mo LIBOR 0.46%
Swap Rates  
3 Year 1.092%
5 Year 1.281%
10 Year 1.468%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Dec 7 Nonfarm Productivity 3Q F -4.9% -4.9% -5.0%
Dec 7 Unit Labor Costs 3Q F 8.3% 8.3% 8.3%
Dec 7 Trade Balance Oct -$66.8b -$66.8b -$80.9b
Dec 8 JOLTS Job Openings Oct 10.469m 10.469m 10.438
Dec 10 CPI (MoM) Nov 0.7% 0.7% 0.9%
Dec 10 Core CPI (MoM) Nov 0.5 0.5% 0.6%
Dec 10 CPI (YoY) Nov 6.8% 6.8% 6.2%
Dec 10 Core CPI (YoY) Nov 4.9% 4.9% 4.6%
Dec 10 U. of Mich. Sentiment Dec 68.0 68.0 67.4

 


Top 5 Events for the Week

December 6 – 10, 2021

1.  November CPI Report— Friday

While the November jobs report posted so-so numbers, it’s probably not enough to delay the Fed’s intentions to accelerate tapering at next week’s FOMC meeting. Perhaps more important than the labor market in the tapering cause is what the CPI numbers will say. Expectations are that price pressures will remain firmly in place and that should be enough to stoke the Fed’s tapering desires.

For November, overall CPI is expected to increase  0.7% versus 0.9% the prior month. The core rate (ex-food and energy) is expected to increase 0.5% versus 0.6% in October.  Overall CPI (YoY) is expected to rise to 6.8% from 6.2% in October. Core CPI (YoY) is expected to lift to 4.9% from October’s 4.6%. That would be the highest core rate in more than 30 years. We have mentioned before that the fourth quarter would likely see continued increases in YoY CPI given the low monthly numbers rolling out of the calculations from last year, and that is happening and should buttress the Fed’s desires to accelerate tapering of bond purchases to conclude by late spring of next year.

Source: Bloomberg

2.  October Job Openings and Labor Turnover Survey – Wednesday

The November jobs report was a bit mediocre, but within the details the health of the labor market appears solid. The JOLTS Survey will be another data  point that confirms that healthy picture.   Job openings set a record high of 11.098 million in July then dipped a bit in August to 10.439 million and a nearly identical 10.438 million in September. Expectations are openings will creep higher t0 10.468 million. That’s plenty of available jobs for those looking for work.

3. Preliminary University of Michigan Consumer Sentiment – Friday

Sentiment took another hit in November as inflation expectations sent sentiment to a decade low reading.  There is, however, a stark divide between sentiment readings for Republicans and Democrats in the survey as the political divide infects another aspect of our daily lives. The Bloomberg consensus is for sentiment to be slightly better in December at 68.0 versus 67.4 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 4.9% in November for the 1yr outlook and 3.0% in the 5-10yr outlook.

4. October Trade Balance—Tuesday

The September trade deficit was the widest on record at -$80.93 billion as the US economy continued to perform well and demanded both goods and services from overseas sources, while exports were weighed down by continued headwinds in international economies due to increasing Covid cases.  Trade deficits subtract from GDP so the wider it goes the more it detracts from GDP. For October, the expectation is that the deficit will narrow to -$66.8 billion, the lowest since April, as both foreign economies perk up a bit, aiding the export numbers, while some slowing in domestic demand is forecast.

5. Treasury Auctions 10yr and 30yr Debt – Wednesday/Thursday

The latest rally in long-term Treasuries will get put to the test this week as the Treasury finishes a week of auctions with $36 billion in 10-year notes on Wednesday and $22 billion in 30-year bonds on Thursday. Besides the usual bill auctions today the Treasury will sell $54 billion in 3-year notes tomorrow. Given the lift in short-end yields of late, that auction should go without a hitch but we’ll be watching the 10-year and 30-year auctions to see how well they are put away after the recent rally in longer-end debt. At the very least, the looming auctions should keep additional rallies on a short leash until the new debt is put away.


Yield Universe

Source: SouthState Bank Fixed Income Trading Desk

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Tags: Published: 12/06/21 by Thomas R. Fitzgerald