Government Funding Deadline Approaches

Feb 11, 2019
US Capital Building

Government Funding Deadline, Inflation & Retail Sales 

This week U.S./China trade talks will take a backseat to the Feb. 15th government funding expiration. Congressional conferees are assembling a bipartisan agreement that won’t have wall funding, but hopefully will be crafted to allow both sides to claim some measure of victory allowing us to move on to other matters. Meanwhile, last week did see some air come out of the U.S./China trade talks and that squashed the equity rally that had characterized 2019 YTD. It reminds us of Charlie Brown, Lucy and the football, but the market falls for it over and over again. Away from D.C. we’ll get January CPI which is expected to soften, providing a key reason for the Fed’s dovish turn. We’ll get the long-delayed December retail sales numbers on Thursday with an expected slowing vs. November and February consumer sentiment on Friday is expected to show a little pop after the stock rally in January. 


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


calendar icon Top 5 Events for the Week

FEB 11 - 15, 2019

1. Gov’t Funding & Trade Talks—All Week

2. Fed Speak – All Week

3. January CPI Report—Wednesday

4. December Retail Sales—Thursday

5. February U. of Michigan Sentiment —Friday

 

 

1.  Government Funding Expiration & China Trade Talks–All Week 

This week U.S./China trade talks will take a backseat to the Feb. 15th expiration of government funding. Congressional conferees are assembling a bipartisan agreement that won’t have wall funding, but hopefully will be crafted to allow both sides to claim a partial victory allowing us to move on to other matters. Meanwhile, last week did see some air come out of the U.S./China trade talks and that squashed the equity rally that had characterized most of the early trading in 2019.  By now it really shouldn’t surprise anyone to see hopeful early comments on various negotiations dim as actual substantive achievements prove illusive. It reminds us of Charlie Brown, Lucy and the football but the market falls for it over and over again. As the reality of the March 1 deadline approaches, if no substantive deal is in hand, expect Treasury prices to trade higher as concerns increase over slowing trade and global growth.

 

2.  Fed Speak —All Week

The increasing signs of a synchronized global slowdown are getting harder and harder to ignore and the dovish turn by the Fed easier to rationalize. This week we have seven Fed members speaking in various venues, including Chair Powell tomorrow, so we are apt to get some additional insight into the extent of the Fed’s newly acquired dovishness. With global slowing in Europe, China, Japan and the ongoing uncertainties of Brexit, the Fed’s dovish turn seems the appropriate course. The speakers this week are likely to buttress that decision in their talks and that could provide a positive tone to Treasuries.

 

3.  January CPI—Wednesday

While the labor market has continued to impress, (see the January jobs report), inflation readings have failed to show the expected Phillips Curve-inspired bump to inflation. It’s with that backdrop that the January CPI release on Wednesday will be awaited as confirmation that inflation pressures are NOT building providing further rationalization to the Fed’s dovish turn.  Expectations are for the overall reading to increase slightly by 0.1% versus –0.1% in December due to the drop in energy costs. The core rate (ex-food and energy) is expected to increase 0.2% for the fourth straight month.  On a year-over-year basis, CPI is expected to follow a 3/10ths drop in December by dropping 4/10ths to 1.5% in January (helped along by favorable base effects, namely a 0.5% gain in Jan. 2018 that’s falling off the calculation). Core CPI YoY is expected to dip a tenth to 2.1% after two months at 2.2%.  The Fed’s preferred inflation measure, core PCE, remains slightly under 2% at 1.9%. The trend for PCE is to run 30bps below  CPI so if core CPI dips to  2.1% that implies core PCE of 1.8%, and moving south. That will have the trend in core CPI and PCE decreasing over the past couple months adding emphasis to the Fed’s decision to pause  rate hikes for the foreseeable future. 

 

Core CPI YoY

 

4.  December Retail Sales —Thursday

The December Retail Sales Report has been delayed nearly a month due to the government shutdown but it will finally make an appearance on Thursday. The delay takes some steam out of what is normally a first-tier report but expectations are for most key metrics to be off the strong November readings. The all-important Control Group reading (which is a direct GDP input) is expected to post a decent 0.4% gain but that will pale in comparison to November’s 0.9% pop. Overall sales are expected to increase 0.1% month-over-month, short of the 0.2% gain in November while sales ex-autos & gas are expected up 0.4% versus 0.5% in November. The decent expected reading in the control group after the moonshot in November should keep fourth quarter GDP estimates in line. The Bloomberg consensus estimate is for GDP to increase 2.6%.

 

5.  Preliminary February University of Michigan Consumer Confidence —Friday

Recent consumer confidence readings—University of Michigan and Conference Board—have taken hits due to the market volatility in the fourth quarter but with the rebound in stocks in January, and the solid jobs report, the preliminary February read from the University of Michigan is expected to show a pop. Expectations are for a 93.5 reading versus 91.2 in January. The high reading was a 101.4 in March of 2018 when tax cut euphoria was running high. The modest expected rebound in confidence should keep the consumer spending enough to maintain first quarter GDP estimates at their modest 2.0% estimate.

 

 

 


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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