Politics Driving Markets

With the elections finally settled in our federal government, we think,  investors are now trading around the idea of a unified Democratic government and all that that means. First, a third stimulus bill seems the first order of business with the $2,000 stimulus checks front and center. Both new Democratic Senators Ossoff and Warnock ran on getting those checks to citizens and new Democratic Majority Leader Schumer will want to repay their wins with a quickly formulated bill that includes them. Most estimates around a third bill approach $1 trillion with aid to state and localities another notable feature. Beyond a quick third stimulus package some other things that might be coming down the pike are items that can be passed via a process known as reconciliation which requires only 51 votes and not a filibuster-proof 60. Some of those items include: changing Medicare eligibility age, climate issues, ACA expansion, and the aforementioned stimulus. The market has already been pricing in a third package since the senate outcome was known last Wednesday. Any mention of other big ticket items will probably goose risk-on assets and put more pressure on Treasury prices in the days and weeks ahead.

 


Treasuries
Treasury Curve Today Week Change
3 Month 0.08% 0.01%
6 Month 0.09% Unch
1 Year 0.10% Unch
2 Year 0.13% 0.01%
3 Year 0.21% 0.04%
5 Year 0.48% 0.11%
10 Year 1.11% 0.18%
30 Year 1.86% 0.19%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.22%
6 Mo LIBOR 0.25%
12 Mo LIBOR 0.33%
Swap Rates
3 Year 0.289%
5 Year 0.552%
10 Year 1.11%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jan 12 NFIB Small Business Optimism Dec 100.5 100.3 101.4
Jan 12 JOLTS Job Openings Nov 6.400mm 6.400mm 6.652mm
Jan 13 CPI (MoM) Dec 0.4% 0.4% 0.2%
Jan 13 Core CPI (MoM) Dec 0.2% 0.1% 0.2%
Jan 13 Core CPI (YoY) Dec 1.7% 1.6% 1.6%
Jan 15 Advance Retail Sales (MoM) Dec 0.0% 0.0% -1.1k
Jan 15 Retail Sales Control Group (MoM) Dec 0.2% 0.0% -0.5%
Jan 15 Industrial Production (MoM) Dec 0.5% 0.4% 0.4%
Jan 15 Univ. of Michigan Cons. Sentiment Jan P 80.0 80.0 80.7

calendar icon Top 5 Events for the Week

Jan. 11 — 15, 2021

1. Trading on a Unified Dem Government — All Week
2. December CPI Report — Wednesday
3. December Retail Sales Report — Friday
4. November JOLTS Job Openings — Tuesday
5. January U. of Mich. Consumer Sentiment — Friday

 

1.  Trading on a Unified Dem Government—All Week

With the election in our federal government finally settled,  investors are now trading around the idea of a unified Democratic government and all that that means. First, a third stimulus bill seems the first order of business with the $2,000 stimulus checks front and center. Both new Democratic Senators Ossoff and Warnock ran on getting those checks to citizens and new Democratic Majority Leader Schumer will want to repay their wins with a quickly formulated bill that includes them. Most estimates around a third bill approach $1 trillion with aid to state and localities another notable feature. Beyond a quick third stimulus package some other things that might be coming down the pike are items that can be passed via a process known as reconciliation which requires only 51 votes and not a filibuster-proof 60. Some of those items include: changing Medicare eligibility age, climate issues, ACA expansion, and the aforementioned stimulus. The market has already been pricing in a third package since the senate outcome was known last Wednesday. Any mention of other big ticket items will probably goose risk-on assets and put more pressure on Treasury prices in the days and weeks ahead.

 

2.  December CPI Report—Wednesday

If you look at rising TIPs inflation breakeven rates there’s little doubt investors believe the new stimulus, and spreading vaccinations, will boost inflation in short order and longer-end Treasury yields have been moving higher in that anticipation. We continue to be a little more skeptical that inflation gains any real foothold in 2021.  For December, overall CPI is expected to increase  0.4% versus 0.2% in November. The core rate (ex-food and energy) is expected to increase 0.1% versus a 0.2% increase in November.  YoY CPI is expected to be 1.3% after last month’s 1.2% result. Core CPI YoY is remain unchanged at 1.6%. Thus, with fairly docile YoY numbers, gathering inflation may be something to expect at some point but it’s probably a late 2021 story.

 

3.  December Advance Retail Sales —Friday

Perhaps second to the monthly jobs reports the Advance Retail Sales Report is a first-tier indicator of the health of the consumer and hence the economy. For December, sales are expected to be flat versus –1.1% in November. Sales ex-auto and gas are expected to be negative at a -0.3% pace slightly better than the –0.8% pace in November. The retail sales control group—a direct feed into GDP—is expected to be flat versus a disappointing -0.5% in November.  Thus, if  expectations are met, a flat headline and control group number, will give way to weakening sales in other areas. So far, however, the tepid retail sales numbers are not hurting the fourth quarter GDP outlook.  Currently, the Bloomberg consensus for fourth quarter GDP is 4.6%.

 

4.  November JOLTS Job Openings—Tuesday

The slide in monthly job gains will get Fed officials concerned so the Job Openings and Labor Turnover Report for November will get additional attention for that reason. While the report is a month behind the jobs report it does provide some additional labor market information that will be of interest to policy makers and investors. Expectations are for 6.400 million openings versus 6.652 million in the prior month. Much like the monthly BLS report, the JOLTS report is slipping a bit and that will concern policymakers as still more that 10 million people remain unemployed from the pandemic. It does help the case for a possible third stimulus as well.

 

5.  January 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 January, the Bloomberg consensus is for sentiment to be 80.0 down slightly from December’s 80.7 reading while consumer expectations edge lower to 89.0 versus 90.0 in December. Recall last month the index increased way above expectations (80.0 vs 76.0 expected). The sentiment index peaked at 101 back in February and bottomed at 68.0 in April. So while there has been some improvement off the lows, sentiment appears to be settling in the 80 range and given the increased virus cases that is a fairly logical read on the situation.

University of Michigan Consumer Sentiment

 


bar graph icon  Yield Universe

Securities offered through the SouthState Bank Correspondent Division ("SouthState") 1) are not FDIC insured, 2) not guaranteed by any bank, and 3) may lose value including a possible loss of principal invested. SouthState does not provide legal or tax advice. Recipients should consult with their own legal or tax professionals prior to making any decision with a legal or tax consequence. The information contained in the summary was obtained from various sources that SouthState believes to be reliable, but we do not guarantee its accuracy or completeness. The information contained in the summary speaks only to the dates shown and is subject to change with notice. This summary is for informational purposes only and is not intended to provide a recommendation with respect to any security. In addition, this summary does not take into account the financial position or investment objectives of any specific investor. This is not an offer to sell or buy any securities product, nor should it be construed as investment advice or investment recommendations.

Published: 01/11/21 Author: Thomas R. Fitzgerald