FOMC Meeting & August Retail Sales
The FOMC rate decision on Wednesday will be the highlight of the week, but with most economic reports posting decent numbers of late it’s not likely the Fed will announce any new initiatives on Wednesday like quantifiable targets to guide reward guidance, or longer duration quantitative easing purchases. Still there will be plenty to digest from a market perspective. This meeting will come with fresh economic and rate forecasts, and with unemployment already below the level that the June forecast had for year-end it will be interesting to see if the Fed’s somewhat pessimistic June forecasts become a more glass half-full outlook rather than half-empty which was the case in June. Recall too the Fed’s June forecast had no rate hikes through 2022 so the market will focus on whether that changes as well. Given the new Monetary Policy Framework that Chair Powell unveiled at Jackson Hole, it would seem unlikely that after talking about allowing the economy to run a little hot they would move forward rate hiking expectations, that’s the market expectation anyway. Away from the Fed meeting the biggest economic release will be the August Retail Sales Report and the expectation there is some forward momentum but definitely cooler than the June and July results.
Derivative Market Rates 
Brokered Deposit Rates| Treasury Curve | Today | Week Change |
|---|---|---|
| 3 Month | 0.10% | -0.01% |
| 6 Month | 0.12% | UNCH |
| 1 Year | 0.13% | +0.01% |
| 2 Year | 0.13% | -0.01% |
| 3 Year | 0.15% | -0.01% |
| 5 Year | 0.26% | -0.01% |
| 10 Year | 0.67% | -0.01% |
| 30 Year | 1.42% | UNCH |
| Fed Funds | 0.25% |
| Prime Rate | 3.25% |
| 3 Mo LIBOR | 0.25% |
| 6 Mo LIBOR | 0.28% |
| 12 Mo LIBOR | 0.4% |
| Swap Rates | |
| 3 Year |
0.222% |
| 5 Year | 0.332% |
| 10 Year | 0.678% |
| Date | Statistic | For | Briefing Forecast | Market Expects | Prior |
|---|---|---|---|---|---|
| Sep 15 | Empire Manufacturing | Sep | 6.5 | 7.0 | 3.7 |
| Sep 15 | Industrial Production MoM | Aug | 1.0% | 1.0% | 3.0% |
| Sep 16 | Advance Retail Sales MoM | Aug | 1.0% | 1.0% | 1.2% |
| Sep 16 | FOMC Rate Decision | Sep 16 | 0.00%-0.25% | 0.00%-0.25% | 0.00%-0.25% |
| Sep 17 | Housing Starts | Aug | 1.475mm | 1.480mm | 1.496mm |
| Sep 17 | Building Permits | Aug | 1.520mm | 1.520mm | 1.483mm |
| Sep 17 | Initial Jobless Claims | Sep 12 | 850k | 850k | 884k |
| Sep 18 | Leading Index | Aug | 1.3% | 1.3% | 1.4% |
| Sep 18 | U.of Michigan Consumer Sentiment | Sep P | 75.0 | 75.0 | 74.1 |
Top 5 Events for the Week
Sept. 14 — Sept. 18, 2020
1. FOMC Rate Decision — Wednesday
2. August Advance Retail Sales — Wednesday
3. August Housing Starts & Permits — Thursday
4. August Leading Index — Friday
5. U. of Michigan Consumer Sentiment — Friday
1. FOMC Rate Decision — Wednesday
With most economic reports posting decent numbers of late, it’s not likely the Fed will announce any new initiatives on Wednesday like quantifiable targets for forward guidance, or longer duration quantitative easing purchases, still there will be plenty to digest from a market perspective. This meeting will come with fresh economic and rate forecasts and with the unemployment rate already below the level that the June forecast had for year-end it will be interesting to see if the Fed’s somewhat pessimistic June forecast becomes a more glass half-full outlook rather than half-empty.
2. August Advance Retail Sales — Wednesday
Perhaps second to the monthly jobs reports the Advance Retail Sales Report is a first-tier indicator of the health of the consumer and hence the economy. For August, sales are expected to be up 1.0% versus 1.2% in July. Sales ex-auto and gas are also expected to stay positive but slow with an up 0.9% reading versus 1.5% in July. The retail sales Control Group—a direct feed into GDP—is expected to be up 0.4% versus 1.4% in July. Thus, if expectations are met some momentum will remain in August but certainly well off the strong bounce in May and June.
3. August Housing Starts and Permits — Thursday
The housing market is one sector of the economy that has kept up the momentum from June though the summer, however, August is expected to plateau after a strong July. Starts are expected to decrease 1.1% to 1.480 million units annualized versus the July pop of 22.6% or 1.496 million units annualized. Permits are expected to increase a bit over July with a 2.5% increase to 1.52 million annualized versus 1.483 million in July. So a bit of a mixed report is expected but still suggestive of strong activity in starts and permits as a whole.
4. August Leading Index — Friday
The Leading Index plumbed new depths in March and April, as one would expect, but rebounded smartly in May while June and July saw a little fade in the May bounce. For August the index is expected to hold near the levels of the prior month, 1.3% versus 1.4% in July. The stock rally is helping to hold up the index but the slowdown in reopening activity and hiring is limiting the gains in the index. Still, hanging above 0 is an accomplishment right now so we’ll take it.
5. September U. of Michigan Consumer Sentiment — Friday
With the consumer playing such a pivotal part in the economy, gauging their sentiment is crucial to determining how likely they are to continue shopping as virus cases continue to spike. For September, the Bloomberg consensus is for sentiment to increase slightly to 75.0 versus 74.1 in August while consumer expectations remain low with a 68.5 reading forecast for September same as August. The sentiment index peaked at 101 back in February and bottomed at 68.0 in April. So while there has been some improvement off the lows, sentiment appears to be stalling around the mid-70 area which is well off the pre-pandemic levels, a fairly logical read on the situation.
Yield Universe
Thomas R. Fitzgerald
Director, Strategy & Research
Tfitzgerald@centerstatebank.com
