This Week Market will Ponder FOMC Rate Decision, China Trade Talks, and Earnings

Jan 28, 2019
Federal Reserve Building

FOMC Rate Decision, Trade Developments, and Earnings 

Wednesday’s FOMC meeting will be watched more for rest-of-year signaling rather than for the singular rate decision. The statement to express increased concern over global growth along with the ongoing trade talks. A new feature for 2019 is that every meeting will have a press conference. Expect the Fed Chairman to be asked about pausing rate hikes at least for March and possibly longer. While he won’t rule out rate hikes he will likely convey they will exercise “patience” and let the previous nine hikes work through the economy. Meanwhile, President Trump signed legislation Friday reopening the government through Feb. 15. The legislation didn’t address the contentious issues so it’s more a can-kicking exercise. Not that we expect another shutdown (we don’t), you can expect the issues of immigration and border security to continue to dog the White House and Congress. While we await the backlog of missed economic reports, corporate earnings will provide insight into how the fourth quarter went for corporate America.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


calendar icon Top 5 Events for the Week

JAN. 28 - FEB 1,  2019

1. FOMC Rate Decision & Press Conf.—Wednesday

2. China Trade Talks – All Week 

3. January Employment Report —Friday

4. ISM Manufacturing Survey—Friday

5. S&P CoreLogic 20-City Home Prices —Tuesday

 

 

1.  FOMC Rate Decision and Press Conference–Wednesday

The first FOMC meeting of 2019 will be watched more for the signaling for the rest of the year rather than for the singular rate decision at this meeting. While expectations of a rate hike are nil, the statement will be scoured for increased concern over the direction of global growth along with the negative impact of the government shutdown and trade developments. While the December meeting characterized the economy as strong, the FOMC is likely to be more cautious and measured at this meeting. A new feature for 2019 is that every meeting will have a press conference. Expect Fed Chair Jay Powell to be asked about pausing rate hikes at least for March and possibly longer. While he won’t bluntly rule out rate hikes he will likely convey they are set to exercise “patience” and let the previous nine rate hikes work through the economy. That being said, with the market already pricing out rate hikes in 2019, if Powell wants to keep the option of a rate hike on the table for later this year (and we think he does), he may stress that possibility. Thus, we’re inclined to believe short-end yields (having rallied 40bps since the December 19th rate hike) has some risk of being pushed higher when the Fed doesn’t remove all threat of future rate hikes in 2019.

 

2.  China Trade Talks  —All Week

After failing in two votes last Friday to reopen the government, Senate Majority Leader McConnell and Minority Leader Schumer cobbled together a temporary deal that reopens the government through February 15th but with no wall funding.  We felt early on in the shutdown the TSA issue and increasing flight delays and safety concerns would be the straw to break the camels back and that appears to be the case. As ground stops were issued at New York’s LaGuardia  Airport on Friday, and with the Super Bowl looming next Sunday in Atlanta, the world’s busiest airport, you could sense a temporary deal was approaching. Longer-term, however, the difficult issues of border security and immigration will dog this divided government. In the meantime, trade talks with China continue and we believe the tough issues of IP theft and technology transfers are the items the administration really wants to tackle, rather the  amount of soybeans to be purchased, but China is not likely to acquiesce without much more give and take. Thus, we think any soon-to-be announced “deals” will be on relatively minor issues while agreement on more strategic issues prove much more difficult to reach a consensus.

 

3.  January Employment Report —Friday

This Friday’s January jobs report is likely to have many shutdown-related kinks such that the results will be discounted to a large extent. While the furloughed federal government employees won’t be counted as unemployed given the nature of the Enterprise Survey, the Household Survey that is used to give us the unemployment rate may tick up if respondents react to not receiving a paycheck in January.  The headline number is expected to ease off the torrid 312,000 pace in December to a more moderate 185,000. While a reversion to the mean was expected after the huge December number there is also decent odds the January number disappoints to the downside. The unemployment rate is expected to be unchanged at 3.9%, but it could easily creep higher off the survey responses from the government shutdown. So, while the jobs report is typically the most anticipated of monthly reports, if ever there was a time to discount the results this would be this month.

 

4.  ISM Manufacturing Survey —Friday

This privately produced series will likely get overlooked on Friday given the jobs report on the same day but it will be important nonetheless given some weakening in regional manufacturing surveys that have been occurring of late. Expectations, however, are for a solid month.  For January, the survey is expected to print a 54.2 versus 54.1 in December but below the 12-month average of 58.8. 

 

5.  S&P CoreLogic CS 20-City Home Price Index—Tuesday

The headline 20-city annual home price appreciation is expected to be 4.90% for November versus 5.03% in October. The average over the past year has been 6.14% with a high of 6.75% in March. So, the trend lower in annual home price appreciation is expected to continue but they are gains nonetheless. And with  average income gains in the low 3% range, home price affordability looks to continue to be stretched which portends this series may continue to trend lower. 

 

S&P CoreLogic CS 20-City Annual Home Price Appreciation

 

 

 


arrow up icon Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg

 

 

 


 

Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

 

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