Positive news on a virus treatment last Friday blunted the steady drumbeat of increasing virus cases, at least for a day, and that serves as notice that the market is still completely focused on the outlook for the virus vis a vis the reopening of economies.  As piece of that involves plans for school openings which are still in flux. How that develops and the consequences it has on the economic rebound will also influence markets. Something that hinges directly on the trend in virus cases is consumer sentiment. With the consumer playing such a pivotal part in the economy gauging changes in their sentiment is crucial to determining how likely they are to continue shopping, etc., as cases continue to spike. Perhaps some good news here is that even with the well-publicized case count increases the consumer is expected to hang onto better sentiment levels than at the depths of the crisis in April. So while some softening in the economic rebound may be inevitable, a more material slowing may be avoided. The other element in that sentiment question is the expiration of supplementary unemployment benefits  at the end of this month. Those $600/week supplements have no doubt buoyed sentiment and spending so if they disappear expect both to head lower.

Treasuries
Treasury Curve Today Week Change
3 Month 0.12% -0.02%
6 Month 0.14% -0.02%
1 Year 0.14% -0.01%
2 Year 0.15% -0.01%
3 Year 0.19% UNCH
5 Year 0.30% -0.01%
10 Year 0.65% -0.04%
30 Year 1.35% -0.10%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.27%
6 Mo LIBOR 0.35%
12 Mo LIBOR 0.48%
Swap Rates
3 Year 0.237%
5 Year 0.342%
10 Year 0.638%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jul 14 CPI (MoM) Jun 0.5% 0.5% -0.01%
Jul 14 CPI Ex-Food & Energy (MoM) Jun 0.1% 0.1% -0.01%
Jul 14 CPI (YoY) Jun 0.6% 0.6% 0.1%
Jul 14 CPI Ex Food & Energy (YoY) Jun 1.1% 1.1% 1.2%
Jul 15 Empire Manufacturing Jul 8.5 8.4 -0.2
Jul 16 Retail Sales (MoM) Jun 5.0% 5.0% 17.7%
Jul 16 Philly Fed Business Outlook Jul 20.0 19.1 27.5
Jul 17 Housing Starts (MoM) Jun 20.3% 20.9% 4.3%
Jul 17 U. of Mich. Sentiment Jul P 79.5 79.0 78.1

calendar icon Top 5 Events for the Week

July 13 — July 17, 2020

1.  Reopening vs. Virus Counts — All Week
2.  June CPI Report — Tuesday
3.  June Retail Sales — Thursday
4.  July Philly Fed Business Outlook — Thursday
5.  July U. of Michigan Sentiment — Friday

 

1.  Reopening/Virus Case Trends — All Week

Positive news on a virus treatment last Friday blunted the steady drumbeat of increasing virus cases, at least for a day, and that serves as  notice that the market is still completely focused on the outlook for the virus, treatments and vaccines. Little else will enter the trading calculus at least through July and probably August as well. As a piece of this, plans for school openings still remain in flux, so how that develops and the consequences it has on the economic rebound will also influence markets.

 

2.  June CPI Report — Tuesday

Inflation has been mentioned as a latent threat given all the stimulus provided to the economy and monetary accommodation provided by the Fed, and certainly if the virus news were to improve, and a V-shaped recovery ensued, it could come sooner rather than later. For now, however, it’s pretty much a dead subject and will likely continue to be for many more months.  Overall CPI is expected to bounce 0.5% versus a –0.1% decline in May as energy prices rebound. The core rate (ex-food and energy) is expected to be up 0.1% compared to a –0.1% drop in May. YoY CPI is expected to be 0.6% after last month’s 0.1% result. Core CPI YoY is expected to be 1.1% versus 1.2% in May. With docile YoY numbers, inflation may be something to expect at some point but that’s probably next year’s story, not 2020.

 

3.  June Advance Retail Sales — Thursday

With data releases limited for the second straight week one report that will get attention is Advance Retail Sales for June which is expected to deliver better numbers than the dreadful April report. Overall sales are expected to show a continued rebound that began in May but at a slower pace with sales increasing 5.0% versus 17.7% in May. Sales ex-auto and gas are also expected up 5.0% versus 12.4% in May. The retail sales Control Group—a direct feed into GDP—is expected to be up 3.9% versus 11.0% in April. Thus,  expectations are met some momentum will remain in June after the strong bounce in May.

 

4.  July Philly Fed Business Outlook — Thursday

Sentiment readings have become almost more important than hard-data as investors look to shifts in sentiment to signal the trend in growth from the depths of the crisis. While the consumer takes center stage in the sentiment sector, business sentiment is an important element as well. For July, the Philly Fed Business Outlook Report is expected to be positive but less than in June at 19.1 versus 27.5. If the expected result comes to pass it would be an early signal that the bounce in June is being curbed some in July with the gathering case counts. It doesn’t, however, appear that sentiment will be mortally damaged either, much like the expectations for consumer sentiment (read on below).

 

5.  July Preliminary Univ. of Michigan Consumer Sentiment — Friday

With the consumer playing such a pivotal part in the economy, gauging their sentiment is crucial to determining how likely they are to continue shopping as virus cases continue to spike. For July, the Bloomberg consensus is for sentiment to increase slightly to 79.0 versus 78.1 in June while consumer expectations remain somewhat low with a 70 reading forecast for July compared to 72.3 in June. As the graph shows, however, despite the bounce in June, and the small improvement expected in July, sentiment is likely to remain well under pre-pandemic levels until a vaccine is developed and that may be several more months away. It is notable, however, that even with the well-publicized case count increases the consumer is hanging onto better levels of sentiment than at the depths of the crisis in April, so while some softening in the economic rebound may be inevitable, a more material slowdown may be avoided if the consumer can hang onto their present sentiment levels.

Univ of Michigan Consumer Sentiment

 

 


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Yield/Duration Relationship

Published: 07/13/20 Author: Thomas R. Fitzgerald