Thanksgiving Week Arrives with Plenty on the Plate

With the Thanksgiving holiday on Thursday, and plenty of people taking the whole week off, it still holds plenty of intrigue. It’s just a matter of who will be around to react to it?  The first matter of business will be whether the Build Back Better Bill passes the Senate. It passed the House last Friday, and word is that moderate Dems (read Manchin and Sinema) are onboard so we could see quick Senate approval before Thanksgiving. Of course, things never seem to go that smoothly in the evenly divided Senate.

We could also hear from Biden on his pick for Fed Chair. Some tea-leave readers have Lael Brainard catching a late bid. That would add some volatility and uncertainty to markets with maybe a slightly more dovish lean, but really all that is just rank speculation for now.

Away from the political intrigue we will get personal income and spending numbers for October on Wednesday, and after the hot retail sales numbers the personal spending figures will get a close once-over. The numbers are inflation-adjusted, unlike retail sales, so we’ll have a truer picture of real consumer spending and not just spending goosed by higher prices. The Fed’s favorite inflation metric will be in the report as well with an expected 4.1% YoY read in Core PCE, the highest in 30 years. That will keep the pressure on the Fed to address the continuing increase in inflation.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.05% +0.01%
6 Month 0.06% Unchanged
1 Year 0.15% +0.02%
2 Year 0.54% +0.07%
3 Year 0.89% +0.07%
5 Year 1.25% +0.07%
10 Year 1.58% +0.05%
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 0.39%
Swap Rates  
3 Year 1.100%
5 Year 1.362%
10 Year 1.631%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Nov 22 Existing Home Sales Oct 6.20m 6.20m 6.29m
Nov 22 Existing Home Sales (MoM) Oct -1.4% -1.4% 7.0%
Nov 24 Advance Goods Trade Balance Oct -$95.0b -$95.0b -$96.3b
Nov 24 GDP Annualized (QoQ) 3Q S 2.2% 2.2% 2.0%
Nov 24 Personal Consumption 3Q S 1.6% 1.6% 1.6%
Nov 24 Durable Goods Orders Oct P 0.2% 0.2% -0.3%
Nov 24 Durables Ex Transports Oct P 0.5% 0.5% 0.5%
Nov 24 Personal Spending Oct 1.0% 1.0% 0.6%
Nov 24 Core PCE (YoY) Oct 4.1% 4.1% 3.6%

 


Top 5 Events for the Week

November 22 – 24, 2021

1.  Build Back Better Bill & Fed Chair Announcement— All Week

The fate of the  Build Back Better Bill will be the first order of business in the Senate. It passed the House last Friday, and word is that moderate Dems (read Manchin and Sinema) are onboard so we could see quick Senate approval before Thanksgiving. Of course, things never seem to go that smoothly in the evenly divided Senate so keep an eye on it. But wait, that’s not all. We could also hear from Biden on his pick for Fed Chair. Some tea-leave readers have Lael Brainard catching a late bid. If that turns out to be true, that will add some volatility and uncertainty to markets, with maybe a slightly more dovish lean, but really all that is just rank speculation for now.

2.  October Personal Income & Spending – Wednesday

After that hotter-than-expected Retail Sales report last week the personal income and spending numbers take on added significance. For October, personal income is expected to edge back into positive territory increasing  0.2% for the month versus a –1.0% dip in September.  Personal spending, meanwhile, is expected to have increased 1.0% versus 0.6% in September.  These numbers are inflation-adjusted, unlike the retail sales figures, so it does look like there was real growth in spending and not just increases reflective of price hikes. The all important inflation number in the report that the Fed prefers (Core PCE) is expected to increase 0.4% MoM versus 0.3% in September and 4.1% YoY (the highest in 30 years) versus 3.7% in September. A miss to the upside here will add pressure to the Fed and continue to accelerate rate-hiking expectations.

3. October Existing Home Sales – Monday

Existing home sales—accounting for 90% of the residential market— are expected to be down slightly from September’s solid results. The October print is expected to  see sales decrease –1.4% month-over-month to 6.20 million houses from 6.29 million in September, on an annualized basis.   Scarce inventory, rapid price appreciation, and recent increases in mortgage rates have created modest headwinds for the housing sector, but activity remains solid if somewhat rangebound. For the last 14 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 one hot sector.

4. 2nd Estimate of Third Quarter GDP—Wednesday

The market will get its second estimate of third quarter GDP on Wednesday and it’s expected to show an uptick from the first estimate. For the quarter, GDP is expected to have increased 2.2% annualized versus the first estimate of 2.0%. That would continue to make it the lowest quarterly GDP since the severe contraction of –31.2% annualized in the second quarter of 2020. Personal consumption, which comprises two-thirds of GDP is expected to be unchanged from the first estimate of 1.6%. Fourth quarter GDP is expected to rebound quite a bit with forecasts of 4.8% annualized growth with consumer spending rebounding to 4.1% as virus cases recede and consumers venture back into stores, restaurants and bars.

Source: Bloomberg

5. October Durable Goods Orders – Wednesday

The manufacturing side of the economy has been strong since the early days of the pandemic, not having the face-to-face constraints of the more service-oriented businesses. Consumer consumption has also focused more on hard goods over services and durable goods orders have followed suit in posting solid activity during much of the pandemic. The current thought is that with the economy reopening more and more that the services-side of the economy will take a hand-off from the manufacturing side and carry the economy in 2022. That hand-off may be delayed once again as October orders are expected  to increase 0.2% versus –0.3% in September. Orders less the volatile transportation sector are expected to increase 0.4% versus 0.5% in September. Thus, expectations are that the durable goods side of the economy will post another solid result for October with little sign of softening or handing off to the services-side.


Yield Universe

Source: SouthState Bank Trading Desk

 

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Published: 11/19/21 Author: Thomas R. Fitzgerald