DC Headlines Will Drive Markets This Week

Aug 17, 2020
Holding a US Treasury Check

D.C. Headlines Will Dominate

This week offers little in the way of first-tier economic data so the market will trade around headlines from Washington D.C. While the fate of the stimulus bill took a hit last week,  President Trump stepped in and signed several executive orders replacing some of the expiring stimulus. However, the biggest blow to consumers is the loss of the $600 per week supplementary unemployment benefit and while one of the executive orders moved to replace that with a $400 per week benefit questions remain over its effectiveness. A quarter of the benefit ($100) is expected to be covered by cash-strapped states so that may be a non-starter. Thus, the benefit could easily fall to $300. We’ll have to see how consumer confidence and spending hold up once that benefit cut starts to show in their wallets. Away from the stimulus headlines the FOMC minutes on Wednesday probably won’t offer much additional insight but they’ll be parsed for any clues on future policy actions, like more forceful forward guidance or perhaps a discussion on yield curve caps. We will get a couple housing reports for July this week, and unlike other parts of the economy the numbers should reflect a housing sector that has maintained the bounce in June with continued momentum in July for both housing starts, permits, and existing home sales.


Treasuries
Treasury Curve Today Week Change
3 Month 0.09% UNCH
6 Month 0.11% UNCH
1 Year 0.13% UNCH
2 Year 0.14% +0.02%
3 Year 0.18% +0.05%
5 Year 0.29% +0.07%
10 Year 0.69% +0.14%
30 Year 1.43% +0.20%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.27%
6 Mo LIBOR 0.33%
12 Mo LIBOR 0.46%
Swap Rates
3 Year

0.249%

5 Year 0.349%
10 Year 0.689%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Aug 17 Empire Manufacturing Aug 15.0 15.0 17.2
Aug 17 NAHB Housing Market Index Aug 74 74 72
Aug 18 Housing Starts (MoM) Jul 4.6% 4.6% 17.3%
Aug 18 Building Permits (MoM) Jul 4.9% 4.9% 3.5%
Aug 19 FOMC Meeting Minutes Jul 29 NA NA NA
Aug 20 Philly Fed Business Outlook Aug 21.0 21.0 24.1
Aug 20 Initial Jobless Claims Aug 15 920k 915k 963k
Aug 20 Leading Index Jul 1.0% 1.0% 2.0%
Aug 21 Existing Home Sales (MoM) Jul 14.4% 14.4% 20.7%

calendar icon Top 5 Events for the Week

August 17 — 21, 2020

1. D.C. Developments — All Week
2. July Housing Starts & Permits — Tuesday
3. FOMC Meeting Minutes — Wednesday    
4. July Leading Index — Thursday
5. July Existing Home Sales — Friday

 

1.  Stimulus Developments — All Week

While the fate of the stimulus bill took a hit last week,  President Trump stepped in and signed several executive orders replacing some of the expiring stimulus and adding a payroll tax cut. While the actions may face legal challenges in some quarters, all parties are likely to acquiesce for the greater good of getting some stimulus into the economy. However, the biggest blow to consumers is the loss of the $600 per week supplementary unemployment benefit and while one of the executive orders moved to replace that with a $400 per week benefit questions remain over its effectiveness. A quarter of the benefit ($100) is expected to be covered by cash-strapped states so that may be a non-starter. Thus, the benefit could easily fall to $300. We’ll have to wait and see how consumer confidence and spending hold up once that cut in benefit starts to show in their wallets.

 

2.  July Housing Starts & Permits — Tuesday

The housing market is one sector of the economy that has kept up the momentum from June into July. Expectations for housing starts and permits are another example of that pattern. Starts are expected to increase 4.6% to 1.24 million units annualized versus the June pop of 17.3% or 1.186 million units annualized. Permits are also expected to show nice momentum with a  4.9% increase for the month to 1.32 million annualized versus 1.258 million in June.  So while other parts of the economy may have paused a bit in July, the housing market seems to be motoring right along.

 

3.  FOMC Meeting Minutes — Wednesday

Minutes are never scintillating reading but the July version should be a real snooze-fest. The FOMC Meeting from July 29 didn’t provide any real surprises other than a pretty dovish Chair Powell in the post-meeting press conference so we’re likely to read from the minutes a fair degree of dovishness as well. Still, the minutes will be parsed for any hints of future actions, whether that is more forceful forward guidance or discussion of yield curve caps at some point in the fourth quarter.

 

4.  July Leading Index — Thursday

The Leading Index plumbed new depths in March and April, as one would expect, but rebounded smartly in May while June saw a little fade in the May bounce and July is expected to show a bit more slippage falling from a 2.0 reading to 1.0. The stock rally is helping to hold up the index but the slowdown in reopening activity and hiring is limiting the gains in the index. Still, hanging above 0 is an accomplishment right now so we’ll take it.

 

Conf Board Leading Index

 

5.  July Existing Home Sales — Friday

On Friday we’ll get July existing home sales—accounting for 90% of the residential market—which are expected to be up 14.4% to 5.40 million houses sold on an annualized basis. Expectations are that it’ll be two straight months of rebounding sales as the June numbers were up 20.7% after a disappointing May. So while certain segments of the economy have cooled a bit in July, the housing sector is expected to maintain the momentum that began in June.

 

 


bar graph icon  Yield Universe

 Yield/Duration Relationship 

 

CenterState Disclosure

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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