Expect Plenty of Fed Speak on Inflation

After the October CPI numbers last week there will be no escaping the topic for Fed officials that venture out into the public sphere. This week there are nine such officials speaking and their views on inflation, and what the Fed will do about it, will be front and center for the market. Add in Friday’s University of Michigan sentiment measure posted it’s lowest reading in more than a decade and you can see inflation angst is front and center with consumers too. To be fair, however, the survey has gotten as politically polarized as most other aspects of our society so there is a vast perception difference whether you’re asking a Republican or a Democrat.

Regardless, the inflation issue has moved from the business section to the front page and that will require more from the Fed than just preaching patience. We will see if that messaging starts to be delivered this week. Away from the Fed we are expecting another solid month for retail sales in October, despite the Gloomy Gus’s in the Michigan survey. That’s just another reason we look more to what consumers do and not so much what they say. The expected retail sales numbers should only bolster fourth quarter GDP expectations which are currently at 4.9% annualized versus the more pedestrian 2.0% in the third quarter.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% Unchanged
6 Month 0.06% Unchanged
1 Year 0.15% +0.01%
2 Year 0.51% +0.08%
3 Year 0.84% +0.15%
5 Year 1.21% +0.12%
10 Year 1.56% +0.08%
30 Year 1.94% +0.03%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.16%
6 Mo LIBOR 0.23%
12 Mo LIBOR 0.40%
Swap Rates  
3 Year 1.034%
5 Year 1.307%
10 Year 1.603%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Nov 15 Empire Manufacturing Nov 21.2 22.0 19.8
Nov 16 Retail Sales (MoM) Oct 1.1% 1.3% 0.7%
Nov 16 Retail Sales Ex-Auto & Gas (MoM) Oct 0.6% 0.7% 0.7%
Nov 16 Retail Sales Control Group (MoM) Oct 0.7% 0.9% 0.8%
Nov 16 Industrial Production (MoM) Oct 0.9% 0.8% -1.3%
Nov 16 Capacity Utilization Oct 75.9% 75.9% 75.2%
Nov 17 Housing Starts (MoM) Oct 1.6% 1.6% -1.6%
Nov 17 Building Permits (MoM) Oct 2.8% 2.8% -7.8%
Nov 18 Leading Index Oct 0.8% 0.8% 0.2%

 


Top 5 Events for the Week

November 15 – 19, 2021

1.  Fed Speak on Inflation— All Week

After the October CPI numbers were released last Wednesday there will be no escaping the topic for Fed officials that venture out in the public in various forums. This week there are nine such officials speaking and their views on inflation and what the Fed will do about it will be front and center for the market. Add Friday’s University of Michigan sentiment measure which posted it’s lowest reading in more than a decade and you can see inflation angst is front and center with consumers too. To be fair, however, the survey has gotten as politically polarized as most other aspects of our society lately so there is a vast perception difference whether your asking a Republican or a Democrat. Imagine that? Regardless, the inflation issue has moved from the business section to the front page and that will require more from the Fed than just preaching patience. We will see if that messaging starts to be delivered this week.

 

Source: Bloomberg

 

2.  October Retail Sales – Tuesday

With the impact of the delta variant continuing to fade the latest retail sales numbers will be examined for signs that the consumer continued to head out to shop in large numbers after a strong August and September showing.   For the month, retail sales are expected to have increased 1.3% versus a 0.7% increase in September. Sales ex-auto and gas are expected to have increased 0.7% versus a 0.7% gain in September. The retail sales control group—a direct feed into GDP—is expected to post a  0.9% increase versus 0.8% in September.  All-in-all, the read on retail sales is expected to be the third solid month in a row which should buoy fourth quarter GDP estimates.   The current Bloomberg consensus for fourth quarter GDP is 4.9% QoQ annualized versus 2.0% in the third quarter as consumer spending is expected to rebound to 4.1% versus a disappointing 1.6% in the third quarter.

3. October Housing Starts and Permits – Wednesday

October housing data starts to roll in this week with housing starts and permits kicking off the action on Wednesday. Starts are expected to increase 1.6% to 1.580 million units annualized versus September’s soft –1.6%, or 1.555 million units, annualized. Meanwhile, permits are expected to also be up from September increasing by 2.8% to 1.630 million annualized versus a weak 1.586 million the prior month. After a soft patch in September housing starts and permits are expected to rebound with solid starts and permits indicating housing is not losing any of its mojo.

4. October Leading Index—Thursday

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 October, the index is expected to move higher by 0.8% versus 0.2% in September. Thus, the Leading Index is expected to reflect an economy continuing its growth trajectory with little signs of imminent contraction.

5. October Industrial Production – Tuesday

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 is happening to the services-side of the economy as virus cases recede, the industrial production/goods side of the economy continues to do just fine.  For October, industrial production is expected to gain 0.8% versus –1.3% in September. Capacity Utilization is expected to edge up to 75.9% versus 75.2% in September. Manufacturing production is expected to increase 0.8% versus -0.7% the prior month. The soft September numbers were mostly blamed on seasonal adjustments that were a bit off due to earlier re-starts for many facilities owing to outsized demand. All-in-all, another solid showing is expected on the manufacturing/goods side of the economy.


Yield Universe

 

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.

Published: 11/12/21 Author: Thomas R. Fitzgerald