September Housing Numbers and More Fed Speak

With the November FOMC meeting still a few weeks away we’ll be greeted with a plethora of Fed speakers this week to give us their latest views on the economy and monetary policy. The headliner will be Chair Powell speaking Friday in a policy panel discussion. Investors will be trying to refine the guessing over the time period between the end of QE tapering and the start of rate hikes. Powell has already revealed that they would like to have tapering completed by mid-2022, so the question becomes when do rate hikes begin?

The last tapering-to-rate-hike scenario took over a year but this time it may not be that long. We already have the Fed’s 3-part requirements to begin said hikes and two of those conditions dealing with inflation have largely been met. It’s the maximum employment criteria that may remain elusive. Perhaps a little more clarity on what they view as maximum employment could help, but that won’t likely come this week. The fed funds futures market has September 2022 as the date for now, but that is subject to more information, perhaps some of that coming this week.

We also get the Fed’s Beige Book of economic observations from each Fed district on Wednesday. That information will be part of what informs members when they convene for the November FOMC meeting. Investors and the Fed will pay particular attention to mentions of labor shortages and inflation concerns.

Away from Fed speak we have some second-tier housing data for September and the Leading Index and Industrial Production. All are expected to post solid, if unspectacular, results.


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% -0.01%
6 Month 0.05% -0.01%
1 Year 0.10% +0.01%
2 Year 0.44% +0.10%
3 Year 0.76% +0.15%
5 Year 1.18% +0.10%
10 Year 1.60% -0.01%
30 Year 2.03% -0.11%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.28%
Swap Rates  
3 Year 0.917%
5 Year 1.258%
10 Year 1.611%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Oct 18 Industrial Production (MoM) Sep 0.2% 0.1% 0.4%
Oct 18 Manufacturing Production (MoM) Sep 0.1% 0.1% 0.2%
Oct 19 Housing Starts (MoM) Sep 0.3% 0.0% 3.9%
Oct 19 Building Permits (MoM) Sep -2.4% -2.4% 5.6%
Oct 19 Fed’s Beige Book Oct NA NA NA
Oct 21 Initial Jobless Claims Oct 16 303k 299k 293k
Oct 21 Continuing Claims Oct 9 2.550m 2.538m 2.593m
Oct 21 Leading Index Sep 0.4% 0.4% 0.9%
Oct 22 Existing Home Sales (MoM) Sep 2.6% 3.6% -2.0%

 


Top 5 Events for the Week

October 18 – 22, 2021

1.  Fed Speak and Beige Book— Wednesday

With the November FOMC meeting still a few weeks away we’ll be greeted with a plethora of Fed speakers this week to give us their latest view on the economy and monetary policy. The headliner will be Chair Powell speaking Friday in a policy panel discussion. Investors will be trying to refine the guessing over the time period between the end of QE tapering and the start of rate hikes. Powell has already revealed that they would like to have tapering completed by mid-2022, so the question is when do rate hikes begin?

The last tapering-to-rate-hikes scenario took over a year but this time may not be that long. We already have the Fed’s 3-part requirements to begin said hikes and two of those conditions dealing with inflation have been met. It’s the maximum employment criteria that may remain elusive. Perhaps a little more clarity on what they view as maximum employment could help, but that won’t likely come this week. The fed funds futures market has September 2022 as the date for the first hike, but that is subject to more information, perhaps some of that coming this week?

We also get the Beige Book of economic conditions in each Fed district on Wednesday. This is the economic observations that will inform the members at the November FOMC meeting. We expect a solid, if unspectacular, read on the economy but labor market conditions and  inflation comments will be viewed with interest.

2.  September Housing Starts and Permits- Tuesday

While this week is void of any first-tier data points it is chock full of September housing data starting with starts and permits tomorrow. Starts are expected to be unchanged from August’s surprisingly strong 1.615 million units annualized. Meanwhile, permits are expected to be down from August decreasing by 2.4% to 1.680 million annualized versus a strong 1.721 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 despite the recent pick-up in  mortgage rates.

3. September Existing Home Sales – Friday

Existing home sales—accounting for 90% of the residential market— are expected to be up slightly from August’s mediocre results. The September print is expected to  see sales increase 3.6% month-over-month to 6.09 million houses from 5.88 million in August, on an annualized basis.   Scarce inventory and rapid price appreciation have created a modest headwind to the housing sector for much of this year but activity remains solid if somewhat rangebound.

4. September 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 September, the index is expected to tick lower to  0.4% versus 0.9% in August. Thus, the Leading Index is expected to reflect an economy continuing its growth trajectory but with little signs of building momentum nor imminent contraction.

Source: Bloomberg

5. September Industrial Production-Monday

The manufacturing side of the economy has done exceedingly well since the earliest days of the pandemic, except for various supply-chain challenges. While a hand-off of sorts is expected to the services-side of the economy as virus cases recede but in the meantime the industrial production/goods side of the economy is doing just fine, thank you very much. For September industrial production is expected to gain 0.1% month-over-month versus 0.4% in August. Capacity Utilization is expected to be unchanged at 76.4%. Manufacturing production is expected to increase 0.1% versus 0.2% the prior month. All-in-all another solid, if unspectacular, showing is expected on the goods side of the economy.

 


Yield Universe

Source: SouthState Bank Trading Desk

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Published: 10/18/21 Author: Thomas R. Fitzgerald