Georgia Elections and Jobs

As a new year opens, investors will be fixated on the political once again. First, the Georgia senatorial run-off election concludes tomorrow but the closeness of the polls indicates it may be Wednesday or later before we know the final results. A win by one or both Republicans will keep that party in control of the Senate while a Democratic sweep would switch control to the Dems. As mentioned, polls are very tight and more than 3 million people took part in early voting, easily a record for a Georgia run-off,  and counting those votes won’t begin until polls close so markets will most likely be waiting for results after Tuesday night. If gridlock (i.e., Republican control) looks to be the order of the day, expect the Fed to continue with full-on accommodation for this year. A Dem-controlled Senate would likely mean more fiscal support to aid the Fed’s monetary accommodation. That might lead to a risk-on rally and a bias towards higher yields. In the economic space, the December jobs report on Friday should show a marked slowing in job gains (50k expected) while two other big December reports—ISM Manufacturing tomorrow and ISM Services on Thursday—are expected to be decent but off November levels.


Treasuries
Treasury Curve Today Week Change
3 Month 0.07% -0.01%
6 Month 0.09% Unch
1 Year 0.10% +0.01%
2 Year 0.12% -0.01%
3 Year 0.17% -0.01%
5 Year 0.37% -0.01%
10 Year 0.93% -0.03%
30 Year 1.67% -0.04%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.24%
6 Mo LIBOR 0.26%
12 Mo LIBOR 0.34%
Swap Rates
3 Year 0.240%
5 Year 0.431%
10 Year 0.932%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jan 5 ISM Manufacturing Index Dec 56.6 56.3 57.5
Jan 6 ADP Employment Change Dec 50k 50k 307k
Jan 6 Factory Orders Nov 0.7% 0.7% 1.0%
Jan 6 FOMC Meeting Minutes Dec 16 NA NA NA
Jan 7 ISM Services Index Dec 54.5 54.5 55.9
Jan 8 Change in Nonfarm Payrolls Dec 50k 50k 245k
Jan 8 Unemployment Rate Dec 6.8% 6.8% 6.7%
Jan 8 Average Hourly Earnings (YoY) Dec 4.5% 4.5% 4.4%
Jan 8 Labor Force Participation Rate Dec NA NA 61.5%

calendar icon Top 5 Events for the Week

Jan. 4 — 8, 2021

1. GA Elections & Electoral College Certification — Tues/Wed
2. December Employment Report — Friday
3. December ISM Manufacturing — Tuesday
4. December ISM Services Index — Thursday
5. November Factory Orders — Wednesday

 

1.  Georgia Election Results and Electoral College Certification — Tuesday/Wednesday

As a new year opens, investors will be fixated on the political once again. First, the Georgia senatorial run-off election concludes tomorrow but the closeness of the polls indicates it may be Wednesday or later before we know the final results. A win by one or both Republicans will keep that party in control of the Senate while a Democratic sweep would switch control to the Dems. As mentioned, polls are very tight and more than 3 million people took part in early voting, easily a record for a run-off,  and counting those votes won’t begin until polls close so markets will be waiting for results beyond Tuesday night. Meanwhile, the normally ceremonial certification of the Electoral College results on Wednesday will be anything but this year. With Republican members in both the House and Senate pledging to object to the results it could add some suspense and uncertainty to the week. Both the Senate and House would need to vote in the majority to sustain the objections and that is not going to happen so this maneuver may delay certification but it’s not  going to change the results. In any event, venturing into somewhat uncharted constitutional  waters could lead to a flight-to-safety trade in Treasuries until the uncertainty is removed.

 

2.  December Employment Report — Friday

Weekly jobless claims have been stuck in the 800 thousand range for the past month and that stubbornness is what is expected to show with December job growth slowing quite markedly. The monthly gain in jobs is expected to be 50 thousand versus 245 thousand in November. The December gain would mean about 12.5 million jobs have been recovered from the 22 million lost in April and May. The fact that job gains are slowing to a trickle while nearly 10 million remain jobless from the pandemic speaks to the long and grinding nature that will be this recovery. The Fed knows a new administration is headed to the White House in a couple weeks, and at some point this week we should know which party will control the Senate and that will be key in determining the level if fiscal support. If gridlock (i.e., Republican control) looks to be the order of the day, expect the Fed to continue with full-on accommodation for this year. A Dem-controlled Senate would likely mean more fiscal support to aid the Fed’s monetary accommodation. That might lead to a risk-on rally and a bias towards higher yields.

 

3.  December ISM Manufacturing — Tuesday

In addition to the employment numbers we get two other big December economic reports in the form of the ISM Manufacturing Index tomorrow and the ISM Services Index on Thursday. Combined with the jobs report on Friday these three reports will give us a good idea of December activity. The ISM Manufacturing Index is expected to be 56.6 versus 57.5 in November indicating the manufacturing sector is expected to remain in solid expansionary territory which has been the case since June.

 

4.  December ISM Services Index — Thursday

The ISM Services Index on Thursday is expected to print a 54.5 versus 55.9 in November, so another near duplicate of the prior month. So in all, the pair of reports, ISM Manufacturing and Services, are expected to show solid expansion in both sectors but with slight slippage which would correspond with an expected slim gain in jobs for December.

ISM Manufacturing and Services

 

5.  November Factory Orders — Wednesday

Factory orders for November are expected to be up 0.7% month-over-month versus 1.0% in October. Ex-transportation orders are expected to be up 0.8% versus 1.0% the prior month. Thus, decent numbers that confirm factory activity continues to be good despite the spreading virus.

 

 


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Published: 01/04/21 Author: Thomas R. Fitzgerald