Fed Silence Will Be Broken This Week
With all the turmoil in financial markets of late, comments from Fed officials have been strangely few and far between. That will change this week when the annual Jackson Hole Symposium of global central bankers opens on Thursday. The title of the conclave is “Challenges for Monetary Policy” so the speeches and other headlines emanating from Jackson Hole will be scoured for indications of future action. The July FOMC minutes on Wednesday, while somewhat stale as they follow the post-meeting turmoil stemming from the tariff announcement (and subsequent delay), and increased signs of global slowing, will provide insight into the Fed’s level of concern with global slowing versus domestic strength. July existing and new home sales and the Leading Index headline a light data calendar but as they’re July numbers, and before the August volatility, will be of limited value.
|Treasury Curve||Today||Week Change|
|3 Mo LIBOR||2.14%|
|6 Mo LIBOR||2.02%|
|12 Mo LIBOR||1.95%|
|Date||Statistic||For||Briefing Forecast||Market Expects||Prior|
|Aug 21||MBA Mortgage Applications||Aug 16||NA||NA||21.7%|
|Aug 21||Existing Home Sales||July||5.38m||5.39m||5.27m|
|Aug 21||Existing Home Sales MoM||July||2.2%||2.3%||-1.7%|
|Aug 21||FOMC Meeting Minutes||July 31||NA||NA||NA|
|Aug 22||Fed Jackson Hole Symposium||Aug 22||NA||NA||NA|
|Aug 22||Markit US Manufacturing PMI||Aug P||50.5||50.5||50.4|
|Aug 22||Markit US Services PMI||Aug P||53.0||52.8||53.0|
|Aug 22||Leading Index||July||0.2%||0.2%||-0.3%|
|Aug 23||New Home Sales MoM||July||-0.2%||-0.2%||7.0%|
Top 5 Events for the Week
Aug. 19 - 23, 2019
1. Global Slowing/Trade-Related Fallout – All Week
2. Jackson Hole Symposium – Thurs./Friday
3. July FOMC Minutes – Wednesday
4. July Existing & New Home Sales – Thurs./Friday
5. July Leading Index – Thursday
1. Global Slowing/Trade-Related Fallout – All Week
If anything came into focus a bit more after last week it was the ongoing dichotomy between domestic economic strength and the increasing signs of economic slowing in the rest of the world. It’s this slowing that has gripped trading in fixed income markets driving yields to all-time, or near all-time, lows. The July retail sales numbers were nothing if not strong but they did occur prior to the increased market volatility in August so it remains to be seen if consumer confidence takes a hit. In the meantime, the trade/currency wars will continue to impact market direction as well. The partial rollback of the recently announced additional tariffs aided stocks, but did little to stem the Treasury rally, and while talks between the US and China are rumored to be restarting soon, the complications from the Hong Kong protests only add another layer of uncertainty to the matter. Right now Treasuries are giving back a very limited amount of the rally they’ve experienced since the beginning of August. There’s little driving the selling other than “it’s gone too far too fast” so we continue to believe there is little change to the current global slowing trajectory. Thus, the trading rubric remains one of limited pullbacks interrupting the stronger grind to lower yields.
2. Central Bank Jackson Hole Symposium - Thursday/Friday
With the turmoil in financial markets of late, comments from Fed officials have been strangely few and far between. That will change this week when the annual Jackson Hole Symposium of global central bankers opens on Thursday. The title of the conclave is “Challenges for Monetary Policy” so the speeches and other headlines emanating from Jackson Hole will be scoured for indications of future action, not only by the Fed but by other central banks as well. It’s obvious that if global slowing wasn’t a thing the Fed would not be in easing mode given the strength in the most recent CPI and retail sales numbers. Alas, global growth is slowing and while the US is a somewhat isolated economy, it can’t withstand the gathering global weakness forever; thus, we suspect fairly dovish commentary. While the retail sales and CPI numbers dim the chances for a 50bps cut in September a 25bps cut is still very much in the cards. If the Fed wanted to get ahead of the curve with a 50bps cut, regardless of domestic strength, Jackson Hole would be the place to start floating trial balloons.
3. Minutes From The July FOMC Meeting — Wednesday
The July FOMC minutes on Wednesday comes just prior to Jackson Hole and follows the August turmoil stemming from the announced additional tariffs (and subsequent delay), and increased signs of global slowing. However, they should still provide insight into the Fed’s level of concern, and possible reaction function, with global slowing versus domestic strength. As mentioned above, a 25bps rate cut is still the odds-on favorite for the September meeting but the minutes will be scoured for any hints that the level of concern over global troubles might tip the balance towards a more aggressive 50bps easing.
4. July Existing & New Home Sales – Thursday/Friday
July Housing activity may represent a placeholder until the August rally in mortgage rates is picked-up in August and September activity. In any event, existing and new home sales will be scrutinized for any pick-up in what has been a fairly listless market in 2019, despite a nearly 100bps drop in rates during the year. Thursday’ s existing sales number is expected to increase 2.3% to 5.39 million units annualized. The average over the past year has been 5.23 million so a slight sequential gain is expected as well as a pick-up over the annual average. New home sales are based on contract signings so they are a timelier look at the market compared to closings on existing sales; however, new homes sales represent just 10% of the market. In any event, new home sales for July are expected to have decreased –0.2% to 645 thousand annualized versus June’s gain of 7% or 646 thousand. The average over the past year has been 622 thousand annualized.
The Conference Board’s Leading Index is a compilation of metrics that tend to lead the economy, and it is particularly useful as a predictor of recessions. The index always falls below zero prior to a recession and earlier in the year the index was flirting with the zero-level and printed a –0.3 in June. The index, however, will need to move below -1.0 to provide a reliable recession signal. That being said, the July number is expected to improve from June’s -0.3 to 0.2. If the index matches expectations it will be a signal that the economy is perhaps slowing but with little indication of a dip into recessionary territory.
Investment Yield Ranges Over Last Year
Thomas R. Fitzgerald
Director, Strategy & Research