Election Aftermath

While the presidential election results are mostly settled, the Senate remains uncertain until Georgia’s twin run-offs on January 5. For now investors are assuming the Senate will stay in Republican hands, and thus in some sort of goldilocks gridlock, and that has the attention returning squarely to the virus. The outlook on case trends and hospitalizations will be the leading factors driving trading for the next month or two. The question really will be whether the trends accelerate to the point that some partial, or localized, lockdowns will be necessary. We’ve learned a lot about the virus since March so full-scale lockdowns, with the attendant economic damage, are probably not in the cards, but certainly frontline service businesses could face another bout of furloughs if trends worsen significantly. While the recent vaccine news has been positive, wide-spread inoculations are still a late spring to early summer event. What happens between now and then with the virus, and the need or not to implement lockdowns, will dictate much of the trading and yields into year-end and into early 2021. Meanwhile, the November jobs report is expected to show 500 thousand new jobs which continues the slowing trend of the past several months, while more than 10 million remain jobless.


Treasuries
Treasury Curve Today Week Change
3 Month 0.08% Unch
6 Month 0.09% -0.01%
1 Year 0.10% -0.01%
2 Year 0.15% -0.01%
3 Year 0.20% -0.01%
5 Year 0.37% -0.02%
10 Year 0.85% Unch
30 Year 1.58% +0.03%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.23%
6 Mo LIBOR 0.26%
12 Mo LIBOR 0.33%
Swap Rates
3 Year 0.296%
5 Year 0.446%
10 Year 0.857%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Nov 30 Pending Home Sales MoM Oct 1.0% 1.0% -2.2%
Dec 1 ISM Manufacturing Nov 58 58 59.3
Dec 2 ADP Employment Change Nov 420k 420k 365k
Dec 2 Fed Chair Powell on Capitol Hill NA NA NA NA
Dec 3 ISM Services Nov 56.0 56.0 56.6
Dec 4 Change in Nonfarm Payrolls Nov 7 500k 500k 638k
Dec 4 Unemployment Rate Nov 6.8% 6.8% 6.9%
Dec 4 Trade Balance Oct -$64.8b -$64.8b -$63.9b
Dec 4 Factory Orders Oct 0.8% 0.8% 1.1%

calendar icon Top 5 Events for the Week

Nov. 30 — Dec 4, 2020

1. Virus Outlook—All Week
2. November Employment Report—Friday
3. November ISM Manufacturing—Tuesday
4. November ISM Services—Thursday
5. October Trade Balance and Factory Orders—Friday

 

1.  Virus Outlook—All Week

While the presidential election results are mostly in focus, the Senate remains uncertain until Georgia’s twin run-offs on January 5. For now investors are assuming the Senate will stay in Republican hands and thus in some sort of goldilocks gridlock, and that has the attention returning squarely to the virus. The outlook on case trends and hospitalizations will be the leading factors driving trading for the next month or two. The market assumes case trends will get worse in the near-term, especially after the holidays bring groups together and just as the winter weather starts to keep more of us indoors. The question really will be whether the trends accelerate to the point that some partial, or localized, lockdowns will be necessary. We’ve learned a lot about the virus since March so full-scale lockdowns, with the attendant economic damage, are probably not in the cards, but certainly frontline service businesses could face a bitter winter if trends worsen significantly. While the recent vaccine news has been positive, wide-spread inoculations are still a late spring to early summer event. What happens between now and then with the virus, and the need or not to implement lockdowns, will dictate much of the trading and yields into year-end and into early 2021.

 

2.  November Employment Report —Friday

Weekly jobless claims have been stuck in the 700 thousand to 800 thousand range for the past month and that stubborn range is what is expected to show November job growth slowing. The monthly gain in jobs is expected to be 500 thousand versus 638 thousand in October. The November gain would represent about 12.5 million jobs recovered from the 22 million lost in April and May. The fact that job gains are continuing to slow 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 January but the majority in the Senate remains a mystery until the twin Georgia run-offs on January 5. If gridlock looks to be the order of the day, expect the Fed to be continue with full-on accommodation until a Stimulus 2.0 bill is passed.

 

3.  November ISM Manufacturing—Tuesday

In addition to the employment report we get two other big November-based economic reports in the form of the ISM Manufacturing Index tomorrow and the ISM Services Index on Wednesday. Combined with the jobs report on Friday these three reports will give us a pretty good look at November activity. The ISM Manufacturing Index due later is expected to mimic the outlook in October. The headline read is expected to be 58.0 versus 59.3 in October. So the manufacturing sector is expected to remain in solid expansionary territory which is the indication from other manufacturing-related reports as well.

 

ISM manufacturing and services index

 

4.  November ISM Services Index —Wednesday

The ISM Services Index on Wednesday is expected to print a 56.0 versus 56.6 in October, 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 and combined with an expected decent jobs report leads us to believe the Fed may well pass on this month’s meeting and look to next year to decide whether any additional monetary stimulus is necessary.

 

5.  October Trade Balance and Factory Orders —Friday

After the November jobs numbers and ISM manufacturing and services, the trade balance and factory orders for October will be somewhat anticlimactic but they should reflect a manufacturing sector that continues to hum while the trade balance should reflect solid consumption of imports. The trade balance for October is expected to widen to -$64.8 billion versus -$63.9 billion in September. Meanwhile, factory orders for October are expected to be up 0.8% month-over-month versus 1.1% in September. Decent if not solid numbers that should confirm that factory activity continues to be good despite the spreading virus.

 

 


bar graph icon  Yield Universe

Yield/Duration Relationship

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Published: 11/30/20 Author: Thomas R. Fitzgerald