Negotiations over a Stimulus 2.0 Bill have stalled again and that has the risk-off trade gaining this morning and Treasuries rallying. Senate Majority Leader McConnell said late yesterday he didn’t see a path forward to an agreement and that sent stocks sliding. There are three separate packages being floated but all sit around $900 billion with differences in the details. However, a liability shield for businesses and state and local funding remain the contentious pieces. We are down to about a week to get a bill formalized, voted on and signed by the president before the year-end holidays approach. And given we are likely looking at a negative job print for December (more on that below), no let up in virus cases, and the expiration of CARES Act benefits at year-end a sense of urgency is present but it will likely come down to the 11th hour as these things seem to always do.  As we’ve mentioned before, the stimulus uncertainty and the January Senate run-off elections in Georgia are likely to keep Treasury moves in a tight range especially into next week’s FOMC meeting where the Fed could announce longer-dated QE purchases. While they would love to hold that tool back until next year, if Congress can’t produce a new stimulus bill they may be forced into action next week and just the mere threat of that happening is keeping a tight lid on longer-end Treasury moves.


newspaper icon  Economic News

 

We mentioned a few weeks ago that the weekly jobless claims series was starting to level off if not slowly increase and we wondered if the gathering intensity of the virus and renewed lockdowns in some states would lead to a further jump in jobless claims and that seems to be the case. The latest report for the week ending December 5 showed a jump in claims to 853 thousand versus a consensus that projected 725  thousand while the previous week was revised slightly higher to 716 thousand. It’s the highest claims figure since September 18. The claims increase suggests the latest acceleration in virus cases and containment restrictions are starting to have an adverse impact on the labor market recovery.

Initial Jobless Claims

In fact the data implies a negative print for December payrolls. The weekly survey for the jobs report will be next week coinciding with this spike in claims. The Bloomberg consensus for December jobs is for a negative 150 thousand lost in the month and if claims surge over 900 thousand for the week ending December 12, an even weaker jobs print could be in store. Fiscal stimulus anyone?

 

 


line graph icon  November Inflation Comes in Hotter Than Expected But Will it Last?

 

The November Consumer Price Index came in a touch hotter than expected and the increase was fairly broad-based. The overall monthly increase was 0.2% versus 0.1% expected. The core rate (ex-food and energy) also rose 0.2% versus 0.1% expected. The year-over-year rate for the overall was 1.2% matching the October rate but up from 1.1% expected and the core YoY was 1.6%, also matching the October rate but up from 1.5% expected. Financial markets have been pricing in gathering inflation with the back-up in long-term yields and with the increase in TIPs breakeven rates so does this report justify those inflation fears?

Labor Market Slack

 


bar graph icon Market Rates

Treasury Curve Today Chg Last Wk. LIBOR Rates Today Chg Last Wk. FF/Prime Rate Swap Rates Rate
3 Month 0.07% -0.01% 1 Mo LIBOR 0.15% Unch FF Target Rate 0.00%-0.25% 3 Year 0.250%
6 Month 0.08% -0.01% 3 Mo LIBOR 0.22% Unch Prime Rate 3.25% 5 Year 0.431%
2 Year 0.13% -0.02% 6 Mo LIBOR 0.25% -0.01% IOER 0.10% 10 Year 0.891%
10 Year 0.89% -0.08% 12 Mo LIBOR 0.34% Unch SOFR 0.08%

 

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Published: 12/11/20 Author: Thomas R. Fitzgerald