Investors Will Search Fed Minutes and Speeches for Clues about Changes to Pace of Rate Hikes

May 21, 2018
Jerome Powell

FOMC Minutes, Fed Speakers, April Home Sales and Durable Goods

This week is data-light, with April home sales (new and existing) and durable goods orders the only reports of consequence, so the market will be focused between those releases on other matters. Those other matters include the FOMC minutes from the May 2 meeting, Fed speakers (including Chairman Powell on Friday), and a potential House vote on the Senate’s modest reforms of the Dodd-Frank Act. Recall the May FOMC meeting delivered a largely as-expected statement, with no material change to the outlook or odds of a June rate hike, the minutes will be scoured for signs members are beginning to lean towards a 4-hike 2018 versus the current 3-hike consensus. The markets have priced in the 3-hike plan so any lean to a fourth will probably further the curve flattening trend. 


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

MAY 21 – MAY 25,  2018

1. FOMC Minutes & Fed Speakers— All Week
2. New & Existing Home Sales —Wed./Thurs.
3. Durable Goods Orders —Wednesday
4. D.C. Happenings — All Week
5. Chicago Fed National Activity Index — Monday

 

 

1.  FOMC Minutes and Fed Speakers—All Week

The minutes from the May 2 FOMC meeting will be released on Wednesday and they will be scrutinized for any indication the membership is moving towards a four-hike 2018 versus the current three-hike consensus. Recall the statement from the meeting stayed away from any controversial changes with odds of a June rate hike remaining largely unchanged after the statement.  The minutes, however, may contain some discussions that begins to lay the groundwork for a four-hike forecast that may be unveiled at the June meeting when refreshed rate and economic forecasts are released. Away from the minutes, a total of six Fed members, including Chairman Powell on Friday, will be speaking this week and investors will be listening for clues about possible policy changes there as well.

 

2.  April New & Existing Home Sales—Wednesday/Thursday

The housing market has had some mixed releases lately, with some slowing sales that have been attributed to a lack of supply as well as rising mortgage rates. Existing home sales account for nearly 90% of the market and give us the broadest view of market health but with data based on closings it can be a bit dated versus new and pending home sales which are based on contract signings. For April, existing home sales are projected to decrease -0.9% to 5.55 million annualized versus 5.60 million in March. The average over the past year has been 5.51 million annualized so a slight beat on the average but a slight sequential decline. New home sales are expected to decrease –2.2% to 679 thousand units annualized versus 694 thousand the prior month. The average over the past year has been 629 thousand, so again a  beat against the yearly average but a slight decline versus a strong March result is expected.

 

Home Sales Annualized 

 

3.  Preliminary April Durable Goods Orders —Friday

While the headline durable goods orders number for April is expected be off slightly versus a strong March, ex the more volatile transportation sector the report should be up slightly versus the prior month. The headline orders number is expected to decrease –1.3% versus 2.6% in March. Orders ex transportation are forecast to increase 0.5% versus 0.1% the prior month. Shipments of capital goods less air and defense (a measure of business investment) are expected to be up 0.4% versus a –0.8% decrease the prior month. 

  

4.  DC Happenings—All Week

Remember the Senate-passed bank reform bill that made modest revisions to the Dodd-Frank Act? After months of wrangling with it in the House, Republican leadership is expected to put it to a vote  this week where it was expected to pass pretty much along the lines of the Senate-passed bill. But, after the failure to pass the Republican-led Farm Bill last Friday the odds of getting the banking reform bill passed is now in some doubt. The failure of the Farm bill lays bare fractures in the Republican party and will lead to questions whether any other major legislation can pass prior to the November mid-terms.

 

5.  Chicago Fed National Activity Index—Monday

The Chicago Fed’s National Activity Index is designed to gauge overall economic activity and related inflationary pressure. It’s a weighted average of 85 indicators drawn from four primary areas: 1) production and income; 2) employment, unemployment, hours worked; 3) personal consumption and housing; and 4) sales, order and inventories. The index printed a 0.34 reading for April versus 0.10 in March. Over the past year, the index has averaged 0.21 with a peak reading of 0.98 in February and a low of –0.37 in August.

 

 

 


Technicals Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed Securities 

Municipals

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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