Fed Speak and Home Sales

Even though we just had an FOMC meeting last week we will be inundated with Fed speak again with almost every FOMC member opining on the economy and US policy. The headliner, however, will be Chair Powell paired with Treasury Secretary Mnuchin testifying before the House Financial Services Panel tomorrow and the Senate Banking Committee on Thursday. While the Fed outlook from last week’s FOMC meeting was more upbeat than the June forecast, it still projects rates unchanged through 2023. Expect lots of additional commentary that could influence trading and yields and with equities set to open lower again along with lower yields an edgy market will be tuned in to what they have to say.  Away from DC, August existing home sales—accounting for 90% of the residential market—which are expected to be up 2.4% to 6.0 million houses sold on an annualized basis. While the percentage gain may look mediocre, it comes on the heels of a 24.7% gain in July. The 6.0 million annualized figure would be the largest since  December 2006 when sales were coming off the extremes of the housing bubble that peaked at 7.25 million annualized units sold in September 2005. To say the housing sector looks to be building towards bubble territory again is an understatement.

Treasuries
Treasury Curve Today Week Change
3 Month 0.08% -0.02%
6 Month 0.11% -0.01%
1 Year 0.12% -0.01%
2 Year 0.14% +0.01%
3 Year 0.15% UNCH
5 Year 0.26% UNCH
10 Year 0.66% -0.01%
30 Year 1.41% -0.01%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.23%
6 Mo LIBOR 0.27%
12 Mo LIBOR 0.37%
Swap Rates
3 Year 0.228%
5 Year 0.324%
10 Year 0.669%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Sep 21 Chicago Fed National Activity Index Aug 1.19 1.19 1.18
Sep 22 Existing Home Sales (Annualized) Aug 6.01mm 6.00mm 5.86mm
Sep 22 Existing Home Sales (MoM) Aug 2.6% 2.4% 24.7%
Sep 23 Markit US Composite PMI Sep P NA NA 54.6
Sep 24 Initial Jobless Claims Sep 19 840k 840k 860k
Sep 24 New Home Sales (Annualized) Aug 890k 890k 901k
Sep 24 New Home Sales (MoM) Aug -1.2% -1.2% 13.9%
Sep 25 Durable Goods Orders Aug P 1.1% 1.1% 11.4%
Sep 25 Durables Ex Transportation Aug P 1.0% 1.0% 2.6%

calendar icon Top 5 Events for the Week

Sept. 21 — Sept. 25, 2020

1.  Fed Speak — All Week
2.  August Existing Home Sales — Tuesday
3.  Initial Jobless Claims — Thursday
4.  August New Home Sales — Thursday
5.  Durable Goods Orders — Friday

 

1.  Fed Speak — All Week

Even though we just had an FOMC meeting last week we will be inundated with Fed speak this week with almost every FOMC member speaking on the economy and US policy. The headliner, however, will be Chair Powell paired with Treasury Secretary Mnuchin testifying before the House Financial Services Panel tomorrow and the Senate Banking Committee on Thursday. While the Fed outlook from last week’s FOMC meeting was more upbeat than the June forecast, it still projects rates unchanged through 2023. Expect lots of additional commentary that could influence trading and yields as the week progresses.

 

2.  August Existing Home Sales — Tuesday

Tomorrow we’ll get August existing home sales—accounting for 90% of the residential market—which are expected to be up 2.4% to 6.0 million houses sold on an annualized basis. While the percentage gain may look mediocre, it comes on the heels of a 24.7% gain in July. The 6.0 million annualized figure would be the largest since  December 2006 when sales were coming off the extremes of the housing bubble that peaked at 7.25 million annualized units sold in September 2005. To say the housing sector looks to be building towards bubble territory again is an understatement.

 

3.  Initial Jobless Claims — Thursday

The weekly change in initial jobless claims continues to be the best real-time indicator of how the economy is recovering and the expectation is that while recovering the recovery is getting shallower.  The Bloomberg consensus expects jobless claims for the week ended September 19 to be 840 thousand, down slightly from 860 thousand the previous week.  Continuing claims are expected to be 12.45 million versus 12.63 million the prior week. While the trend is headed in the right direction the slope is very shallow and that speaks directly to the Fed’s concerns that this will be a long and grinding recovery that spans years, not months.

 

4.  August New Home Sales — Thursday

While new home sales account for only 10% of the residential market, they have a bigger impact on GDP than existing home sales. The only contributor to GDP in existing home sales are the sales commissions while new home sales include the whole panoply of items that go into making a home from scratch. Thus, while it’s less of a tell on housing sector activity it has a bigger GDP impact than existing sales. For August, new home sales are expected to be down –1.2% for the month to 890,000 units sold on an annualized basis versus 901,000 in July. Still, at close to 900,000 units annualized that’s the largest total since 2007 when sales were coming off the bubbly years of 2005-2008.

 

New and Existing Home Sales

 

5.  August Preliminary Durable Goods Orders — Friday

The August Durable Goods Orders Report is expected to mirror other recent reports with gains for the month but off the rebound experienced in June and in July. Overall orders are expected to be up 1.1% versus 11.4% in July. Orders ex-transportation are expected to be up 1.0% versus 2.6% the prior month. Shipments of nondefense  ex-air goods—a proxy for business equipment— is expected to be up a skinny 0.8% versus 1.9% in July. So, like many other reports, save the housing sector, durable goods orders are expected to post positive month-over-month gains but at a much shallower pace than in June and July.

 

 


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Published: 09/21/20 Author: Thomas R. Fitzgerald