Powell Travels to Capitol Hill This Week

Feb 10, 2020
US Capitol Building

Powell Testimony, Retail Sales & CPI

This week will provide a potpourri of Fed speak, retail spending and inflation numbers, along with industrial  production and consumer sentiment. Top billing this week goes to Fed Chair Jerome Powell who travels to Capitol Hill for his semi-annual Congressional testimony. He’ll begin tomorrow in front of the House Financial Services Committee and on Wednesday he’ll testify to the Senate Banking Committee. With a solid January jobs report in his back pocket his economic outlook is not likely to vary from the upbeat view expressed at the January 29 FOMC meeting, but he’ll certainly be asked to discuss the potential impact from the coronavirus and that response will get the market’s attention. Meanwhile, retail sales for January will be released Friday and expectations are for a solid read that almost matches the December pop after a more tentative showing in November.  On Thursday, January CPI is expected to post another modest read on inflation. Year-over-year core CPI is expected to tick lower to 2.2% from 2.3% where it had been for three straight months.   With the Fed’s preferred cost gauge, core PCE, currently at 1.6%, it looks like inflation will remain docile enough to allow the Fed to be patient with policy and remain in pause mode well into 2020.


Treasuries
Treasury Curve Today Week Change
3 Month 1.55% UNCH
6 Month 1.56% +0.02%
1 Year 1.46% +0.01%
2 Year 1.38% +0.03%
3 Year 1.36% +0.03%
5 Year 1.38% +0.03%
10 Year 1.55% +0.01%
30 Year 2.02% UNCH
Short-Term Rates
Fed Funds 1.75%
Prime Rate 4.75%
3 Mo LIBOR 1.73%
6 Mo LIBOR 1.74%
12 Mo LIBOR 1.83%
Swap Rates
3 Year 1.373%
5 Year 1.378%
10 Year 1.505%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Feb 11 NFIB Small Business Confidence Jan 102.7 103.3 102.7
Feb 11 JOLTs Job Openings Dec 6.8m 6.85m 6.8m
Feb 13 CPI MoM Jan 0.2% 0.2% 0.2%
Feb 13 CPI Ex-Food & Energy MoM Jan 0.2% 0.2% 0.1%
Feb 13 CPI Ex-Food & Energy YoY Jan 2.2% 2.2% 2.3%
Feb 14 Advance Retail Sales MoM Jan 0.3% 0.3% 0.3%
Feb 14 Retail Sales Control Group MoM Jan 0.3% 0.3% 0.5%
Feb 14 Industrial Production MoM Jan -0.2% -0.2% -0.3%
Feb 14 U. of Mich. Sentiment Jan 99.0 99.3 99.8

calendar icon Top 5 Events for the Week

February 10-14, 2020

1. Fed Chair Powell on Capitol Hill –Tues./Wed.
2. January Retail Sales Report–Friday
3. January CPI Report –Thursday
4. January Industrial Production–Friday
5. February U. of Mich. Consumer Sentiment–Friday

 

1.  Chair Powell on Capitol Hill—Tuesday/Wednesday

This week will see Fed Chair Jerome Powell travel to Capitol Hill to present his semi-annual Congressional testimony. He’ll begin tomorrow in front of the House Financial Services Committee and on Wednesday he’ll testify to the Senate Banking Committee. With a solid jobs report for January his economic outlook is not likely to vary much from the upbeat tone at the January FOMC meeting. More importantly at this point, he’ll be asked to discuss the potential impact from the coronavirus and that response will certainly get the market’s attention.

 

2.  January Retail Sales Report-Friday

The consumer has been fairly resilient against the various trade and geopolitical headlines of the past several months and while fourth quarter consumer consumption dipped to 1.8% versus 3.1% in the third quarter continued wage and job gains should embolden the consumer to continue spending at an acceptable level. Expectations are for a 0.3% gain in overall sales matching the December print. Sales ex-autos & gas are expected to also be up 0.3% versus 0.5% the prior month.  The Retail Sales Control Group (a direct GDP input) is expected to increase 0.3% versus a robust 0.5% in December.  Thus, expectations are for a solid read on retail sales that almost matches the December pop that came after a more tentative showing in November.

 

3.  January Inflation Report —Thursday

Recent tame inflation readings and comments from several Fed officials that the 2% benchmark should be thought of as a symmetrical target has pushed the importance of the monthly inflation readings down a notch or two. That being said, January CPI is expected to be another modest month as far as inflation is concerned. Expectations are for an increase of 0.2%, same as December. The core rate (ex-food and energy) is expected to also increase 0.2% versus 0.1% the prior month. On a year-over-year basis, CPI is expected to increase from 2.3% to 2.4% but core CPI YoY is expected to tick lower to 2.2% from 2.3% where it had been for three straight months.   With the Fed’s preferred cost gauge, core PCE, currently at 1.6%, it looks like inflation will remain docile enough to allow the Fed to be patient with policy and remain in pause mode well into 2020.

 

Core CPI and PCE Year over Year

 

4.  January Industrial Production —Friday

The manufacturing sector has been mired in a slump for the last year as the uncertainties over the trade dispute with China weighed heavily on output. The January Industrial Production Report due Friday will be another look at how the sector is performing in the first month following the Phase 1 trade deal with China. January’s numbers aren’t expected to show a rebound with the month’s  forecast down -0.2% versus –0.3% in December. Backing out the somewhat volatile utility sector, manufacturing is expected to be down –0.1% versus a 0.2% gain in December. Thus, expectations are for manufacturing to be down again compared to a bounce in December.

 

5.  February University of Michigan Consumer Sentiment–Friday

With two-thirds of the economy based on consumer spending, assessing the sentiment of the consumer is a key tell on future spending. Consumer confidence has  been strong of late what with continued wage and job gains. The preliminary February  read on sentiment is expected to print at 99.3 versus 99.8 in January.  Despite the slight expected downtick, sentiment looks to still be quite strong. The report also provides two inflation outlooks that the Fed watches to gauge inflationary expectations at the consumer level. The  1Yr inflation expectation is 2.5% as is the 5Yr-10Yr expectation.

 


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 Yield/Duration Relationship 

CenterState Disclosure

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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