Never Short a Dull Market

After last week’s full slate of first-tier economic data, and a rostrum full of Fed speakers to enlighten us, this week could be one of treading water. The Fed goes into its quiet period before the April 28 rate decision. Combine that quietness with  a slate of economic releases that are short in quantity and mostly second-tier in nature. In fact, the most market moving event may be the 20-year bond re-opening with traders wanting to see whether the recent rally will dim demand for $24 billion in new debt for the relatively new maturity. In fact, one would think a fairly new issue combined with the rally of late will require a sizeable concession to sell the debt, but as we have seen the Treasury market has been marching to the beat of its own drum in April and that very well could continue. Suffice it to say this week is likely a placeholder of sorts until we get to the FOMC meeting next week. Even then, if the Fed were wanting to tweak policy they would have tipped us off after the many Fed speakers last week and no such tipping was forthcoming. April may be shaping up as a rather quiet month for the market unless we get a black swan event and the recent diplomatic dust-up between the US and Russia may just do it if it moves beyond diplomatic circles.  Remember what they say, never short a dull market.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.01% Unchanged
6 Month 0.04% Unchanged
1 Year 0.06% Unchanged
2 Year 0.16% Unchanged
3 Year 0.34% Unchanged
5 Year 0.82% -0.05%
10 Year 1.58% -0.09%
30 Year 2.26% -0.07%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.19%
6 Mo LIBOR 0.22%
12 Mo LIBOR 0.29%
Swap Rates  
3 Year 0.464%
5 Year 0.906%
10 Year 1.563%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Apr 21 MBA Mortgage Applications Apr 16 NA NA -3.7%
Apr 22 Chicago Fed Nat. Activity Index Mar 1.20 1.20 -1.09%
Apr 22 Initial Jobless Claims Apr 17 650k 625k 576k
Apr 22 Leading Index Mar 0.9% 1.0% 0.2%
Apr 22 Existing Home Sales Mar 6.15m 6.15m 6.22m
Apr 22 Existing Home Sales(MoM) Mar -1.2% -1.1% -6.6%
Apr 23 Markit US Manufacturing PMI Apr P 60.5% 60.5% 59.1%
Apr 23 Markit US Services PMI Apr P 61.5% 61.5% 60.4%
Apr 23 New Home Sales (MOM) Mar 14.2% 14.3% -18.2%

Top 5 Events for the Week

April 19— 23, 2021

1. Washington Happenings—All Week

We mentioned above that it might be a quiet week what with no Fed speakers and a short list of decidedly second-tier economic releases, but we did mention there is always the possibility that something out of Washington D.C. can occur that upsets the apple cart. While the political machinations are churning around the infrastructure bill with the Republicans offering a $600 -$800 billion counterproposal, the guiding philosophy so far in the Biden Administration is to go big and we are sure they will do the same with the Republicans more modest proposal. The infrastructure bill and the tax hikes to pay for it are still a long way off but Washington has other ways to upend the calm waters of the market. One possibility is the raising of diplomatic tensions between the US and Russia. The US placed a lengthy list of sanctions against dozens of Russians and others it identified as aiding the Russian Solar Winds hacking effort, 2016 election interference as well as interference in  the 2020 election. Several Russian “diplomats” are to be expelled as part of the sanctions. You can fully expect Russia to respond in kind, at the least,  but the deeper question is will they take it a step further? They have already been massing larger troop levels and equipment near the disputed Donbas and Crimea regions in Ukraine, and if that low-level skirmish is escalated at some point it will certainly change the market calculus. We’re not predicting anything as we get way over our skis discussing geo-political machinations, but what’s that old saying to never short a dull market?

2. March Leading Indicators—Thursday

The Leading Index-a gauge of nearly 80 variables that tend to move before the overall economy- plumbed new depths this time last year, as one would expect, but rebounded smartly in the summer only to plateau moving into year-end as virus case counts started spiking again.  But with vaccines getting into more people on a daily basis, and case counts well off the holiday highs, the index should start to see a rebound. Any reading below zero constitutes a contracting economy while above zero is an expanding economy. For March the index is expected to move up smartly by 1.0%  versus a 0.2% gain in February. The stock rally has helped the index for months now, but rising rates have been a headwind. Improving sentiment readings have no doubt contributed to the index’s rebound as well. Thus, the Leading Index for March is expected to show us an economy that is poised to continue, if not exceed, its recent growth trajectory.

Source: Bloomberg

3. March Existing Home Sales—Thursday

On Thursday, we’ll get March existing home sales—accounting for 90% of the residential market—which are expected to be down slightly from February’s results. The March print is expected to  see sales dip  –1.1% month-over-month to 6.15 million houses from 6.22 million sold in February, on an annualized basis.  Don’t shed a tear, however, as the housing sector continues to benefit from low mortgage rates and taking the numbers in context the housing market is hitting on all cylinders.  So while mortgage rates rose 50bps in February and March they barely made a dent in March existing home sales and that is notable. While that pick up in mortgage rates is not to be disregarded entirely, by historical standards a 3.30% mortgage loan is still pretty cheap, thus we don’t expect much backsliding in activity.

4. March New Homes—Friday

While new home sales only account for about 10% of the housing market they do bring with it all the elements that go into the construction of a home and so it is an important input to GDP and also to the health of the housing market. For the month of March, sales are expected to rebound after February’s weather-related drop. Sales are expected to increase 14.3% month-over-month to 950 thousand units sold on an annualized basis. In February sales totaled 869 thousand. Sales peaked at 979 thousand annualized back in July as activity coming out of the spring lockdowns and the usual summer selling season coalesced. These numbers are still dwarfed by the nearly 1.4 million homes sold (annualized) in July 2005 as the housing bubble reached its zenith. In any event, present sales are at levels last experienced in 2007 as we were coming off the housing bubble peaks and nearly past the pandemic-related peak from last July.

5. Weekly Initial Jobless Claims—Thursday

We haven’t been including this weekly tell on the job market lately because it had been rather stable, plateauing above 600,000 claims for several months. That was until last week’s claims dipped well below expectations at 576,000 new claims versus over 700,000 claims expected.  It was the lowest claims figure since the pandemic hit. That led some to think the damn may have broken in claims with it moving lower as service-oriented businesses return as case counts drop and vaccination rates increase. Well, not so fast. The expectation for claims this week are 650,000, back above the 600,000 threshold. Once again the initial claims series is interesting. Can claims defy expectations and stay below 600,000 for two straight weeks?


 

Yield Universe

 

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Published: 04/19/21 Author: Thomas R. Fitzgerald