Stimulus 2.0 Passes While Virus Mutates

This holiday-shortened week opens with Congress finally reaching an agreement on a second stimulus bill and it should be voted on today with the president signing it into law soon thereafter.  The latest sticking point over ongoing funding for the Fed’s emergency lending programs was ironed out over the weekend.  Senator Pat Toomey R-PA was the architect of trying to limit the Fed’s ability to fund emergency programs and that brought a rare rebuke from former Fed Chair Ben Bernanke. The  compromise reportedly preserves Fed independence but new emergency programs would require congressional approval.  Also, while stimulus checks are part of the package, as are supplementary unemployment benefits, they are half the amount from the CARES Act and the unemployment benefit extension lasts only ten weeks, not enough time to bridge the gap to a post-vaccinated economy. In any event, the market can return focus to virus trends and news from the UK is not good with the discovery that a mutation of the spike protein is making the virus more contagious. It’s not entirely known yet if the new vaccines will be any less effective with the mutation and that has global markets in a risk-off mood today and it looks to be the case here as well.


Treasuries
Treasury Curve Today Week Change
3 Month 0.08% +0.01%
6 Month 0.08% Unch
1 Year 0.08% -0.01%
2 Year 0.11% -0.02%
3 Year 0.16% -0.02%
5 Year 0.35% -0.03%
10 Year 0.90% -0.03%
30 Year 1.64% -0.02%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.24%
6 Mo LIBOR 0.26%
12 Mo LIBOR 0.33%
Swap Rates
3 Year 0.241%
5 Year 0.421%
10 Year 0.899%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Dec 21 Chicago Fed Nat. Activity Index Nov NA NA 0.83
Dec 22 Third Estimate of 3rd Quarter GDP 3Q 33.1% 33.1% 33.1%
Dec 22 Conf. Board Consumer Confidence Dec 97.0 97.0 96.1
Dec 22 Existing Home Sales Nov 6.70mm 6.70mm 6.85mm
Dec 23 Durable Goods Orders (MoM) Nov P 0.6% 0.6% 1.3%
Dec 23 Initial Jobless Claims Dec 19 875k 875k 885k
Dec 23 Personal Income Nov -0.2% -0.2% -0.7%
Dec 23 Personal Spending Nov -0.2% -0.2% 0.5%
Dec 23 New Home Sales Nov 990k 990k 999k

calendar icon Top 5 Events for the Week

Dec. 21 — 25, 2020

1. Stimulus and Virus Developments — All Week
2. December Consumer Confidence — Tuesday
3. November Existing Home Sales — Tuesday
4. November Durable Goods Orders — Wednesday
5. November Personal Income and Spending — Wednesday

 

1.  Stimulus and Virus Developments — All Week

In this holiday-shortened week Congress has finally come to an agreement on a second stimulus bill and it should be voted on today with the president signing it into law either today or tomorrow. While Senate Majority Leader McConnell stated early last week that there was no way forward in the negotiations there’s nothing like a deadline to focus the mind on the task at hand. The latest sticking point over ongoing funding for the Fed’s emergency lending programs was ironed out. Senator Pat Toomey from Pennsylvania was the architect of trying to limit the Fed’s ability to fund emergency lending programs and that brought a rare rebuke from former Fed Chair Ben Bernanke. Toomey was quoted as saying over the weekend that the compromise in the bill “will preserve Fed independence” but new programs would require congressional approval.  While stimulus checks are part of the package, as are supplementary unemployment benefits they are expected to be half the amount from the CARES Act and the unemployment benefit extension lasts only ten weeks, probably not enough time to bridge the gap to a post-vaccinated economy. In any event, the market can return focus to virus trends and news from the UK is not good with the discovery that a mutation of the spike protein is making the virus more contagious. It’s not known yet how effective the new vaccines will handle the new mutation and that has markets on the defensive this morning with a flight to safety trade into Treasuries.

 

2.  December Consumer Confidence — Tuesday

With two-thirds of the economy consumption-based it’s critical to look at the confidence of said consumer for tells on future spending and hence GDP. While there was a predictable dip at the early stages of the pandemic it never fell to levels of the Great Recession, perhaps due to the stimulus measures and furloughed workers hopes for a quick return to work. However, with virus cases trending up and renewed lockdowns in some states, and no renewed stimulus bill as of yet will confidence take a hit? For December, confidence is expected to trend slightly higher to 97.0 versus 96.1 in October.  Confidence levels are well off pre-pandemic highs in the  130’s and off the 102 print in September.

Conference Board Consumer Confidence

 

3.  November Existing Home Sales — Tuesday

On Tuesday we’ll get November existing home sales—accounting for 90% of the residential market—which are expected to be down slightly from a very strong October number shrinking –2.2% to 6.70 million houses from 6.85 sold on an annualized basis. The housing sector continues to benefit from record low mortgage rates and the November numbers should continue to show a housing market hitting on all cylinders.  The 6.85 million annualized figure in October was the largest since  November 2005 when sales peaked at 7.25 million during the housing bubble.

 

4.  November Durable Goods Orders — Wednesday

While the services side of the economy has taken the brunt of job losses and soft sales, the goods and manufacturing side has faired much better without having to contend with customer-facing COVID restrictions. We should see that again in the November durable goods orders which are expected to increase 0.6% versus a 1.3% gain in October. Orders less the volatile transportation sector are expected to be up 0.5% versus a 1.3% gain in September. Thus, while November is expected to be slightly off the pace in October, gains in orders are still likely showing once again the  goods side of the economy continues to do well despite the increase in virus cases in recent months.

 

5.  November Personal Income and Spending — Wednesday

Personal income has declined in two of the last three months and November is expected to be negative as well with a –0.2% month-over-month dip forecast versus a deeper –0.7% drop in October. Personal spending is also expected to dip  -0.2% versus a steeper drop of –0.7% in October. Meanwhile, core PCE, the Fed’s favorite inflation indicator, is expected to stay at 1.4% year-over-year, matching the October rate.  It hit a multi-year low of  0.91% in April but has been in rebound mode since then but has leveled off since August.  It’s still well below the Fed’s target of 2.0% and is another reason to expect the Fed to remain in ultra-accommodative mode for the next couple years.

 

 


bar graph icon  Yield Universe

Yield/Duration Relationship

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: 12/21/20 Author: Thomas R. Fitzgerald