Stimulus by Executive Order?

Aug 10, 2020
President Trump Signing Executive Orders

Stimulus Via Executive Order?

The fate of the stimulus bill remains very uncertain as both sides insist the other is being intransigent so it looks like any bill passing into law will take longer than investors had assumed only a week ago. So, President Trump stepped in over the weekend signing several executive orders replacing some of the expiring stimulus and adding a payroll tax cut. Whether the actions are constitutional is another matter so the issue of stimulus will continue to drive market direction. That seems to argue for a bullish Treasury scenario. Perhaps second to the monthly jobs reports the Advance Retail Sales Report is another first-tier indicator of the health of the consumer and hence the economy. Overall sales are expected to show the effects of continued virus growth and the hit it’s caused to confidence with spending well off the spike in May and the lesser bounce in June.  Speaking of confidence, the University of Michigan preliminary August reading on consumer confidence is due Friday. The Bloomberg consensus is for sentiment to decrease slightly to 72.0 versus 72.5 in July while consumer expectations remain low with a 65.6 reading forecast for August compared to 65.9 in July.


Treasuries
Treasury Curve Today Week Change
3 Month 0.09% UNCH
6 Month 0.11% +0.02%
1 Year 0.13% +0.03%
2 Year 0.12% +0.01%
3 Year 0.13% +0.01%
5 Year 0.22% UNCH
10 Year 0.55% -0.01%
30 Year 1.23% -0.02%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.25%
6 Mo LIBOR 0.31%
12 Mo LIBOR 0.45%
Swap Rates
3 Year

0.216%

5 Year 0.285%
10 Year 0.568%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Aug 10 JOLTS Job Openings Jun 5.300mm 5.300mm 5.397mm
Aug 10 NFIB Small Business Optimism Jul 100.4 100.4 100.6
Aug 12 CPI (MoM) Jul 0.3% 0.3% 0.6%
Aug 12 CPI Ex-Food & Energy (MoM) Jul 0.2% 0.2% 0.2%
Aug 12 CPI Ex-Food & Energy (YoY) Jul 1.1% 1.1% 1.2%
Aug 13 Initial Jobless Claims Aug 8 1.100mm 1.100mm 1.186mm
Aug 13 Retail Sales (MoM) Jul 1.9% 2.0% 7.5%
Aug 14 Industrial Production (MoM) Jul 3.0% 3.0% 5.4%
Aug 14 U. of Mich. Consumer Sentiment Aug P 71.9 72.0 72.5

calendar icon Top 5 Events for the Week

August 10 — 14, 2020

1. Stimulus Developments — All Week
2. July CPI Report — Wednesday
3. July Retail Sales — Thursday    
4. Initial Jobless Claims — Thursday
5. August U. of Mich. Consumer Sentiment — Friday

 

1.  Stimulus Developments — All Week

The fate of the stimulus bill remains very uncertain as both sides insist the other is being intransigent so it looks like any bill passing into law will take longer than investors had assumed only a week ago. So, President Trump stepped in over the weekend signing several executive orders replacing some of the expiring stimulus and adding a payroll tax cut. Whether the actions are constitutional is another matter so the issue of stimulus will continue to drive market direction. That seems to argue for a bullish Treasury scenario. Reduced and delayed stimulus combined with a slowing in reopenings and slowing in consumer spending seems to point to lower yields, and increased credit concerns in August and beyond.  We have mentioned recently that the four-month yield range may be broken to the downside if cases continued to grow and stimulus was delayed and it looks like we have both of those such that yields may push below those range lows in the days ahead.

 

2.  July CPI Report — Wednesday

Inflation has been mentioned as a latent threat given all the stimulus provided to the economy and monetary accommodation provided by the Fed, and certainly if the virus news were to improve, and a V-shaped recovery ensued. For now, however, there’s not much life in inflation readings and that will likely continue to be for many more months.  Overall CPI is expected to increase  0.3% versus a 0.6% pop in June as energy prices rebounded. The core rate (ex-food and energy) is expected to be up 0.2% matching the gain in June. YoY CPI is expected to be 0.7% after last month’s 0.6% result. Core CPI YoY is expected to be 1.1% versus 1.2% in June. With docile YoY numbers, inflation may be something to expect at some point but that’s probably next year’s story, not 2020.

 

3.  July Retail Sales — Thursday

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. Overall sales are expected to show the effects of continued virus growth and the hit it’s caused to confidence. For July, sales are expected to be up 2.0% versus the 7.5% bounce in June. Sales ex-auto and gas are also expected to stay positive but slow with an  up 1.0% reading versus a 6.7% pop in June. The retail sales Control Group—a direct feed into GDP—is expected to be up 0.8% versus 5.6% in June. Thus, if  expectations are met some momentum will remain in July but certainly well off the strong bounce in May and to a lesser degree in June.

 

4.  Initial Jobless Claims — Thursday

The weekly change in initial jobless claims continues to be the best real-time indicator of how the economy is recovering.  The Bloomberg consensus expects jobless claims for the week ended August 8 to be 1.100 million, down slightly from 1.186 million the previous week.  Continuing claims are expected to be 15.800mm versus 16.107mm. That expected decline, albeit slight, is appreciated but sobering when considering this week’s JOLTs Report is expected to show only 5.300mm available jobs. That’s nearly 3 unemployed workers for every available job.

 

5.  August Preliminary University 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 August, the Bloomberg consensus is for sentiment to decrease slightly to 72.0 versus 72.5 in July while consumer expectations remain low with a 65.6 reading forecast for August compared to 65.9 in July. As the graph shows, however, despite the bounce in June, July saw a decline in sentiment and the expectation is for another small dip in August.

 

Univ of Michigan Consumer Sentiment

 

 

 


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Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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