Fed Aftershocks and G20 Meeting Will Drive Markets This Week

Jun 24, 2019
Osaka, Japan

Fed Aftershocks & Geopolitical Events

The week will be filled with aftershocks from last Wednesday’s FOMC rate decision and ongoing geo-political developments that now encompass escalation with Iran. While the Fed kept rates unchanged they managed to provide a dovish surprise in the form of the dot plots that show a decided tilt towards easing that was not present in the March forecast. Taking the dot plots with the updated economic forecasts and the press conference investors were left with a view that rate cuts are coming and likely sooner rather than later. We expect an initial cut at the July 31st meeting, regardless of a China trade deal and the intervening data, and there are likely to be more cuts to follow. Thus, the market’s 75bps rate-cutting expectation for 2019 is still very much in play.

Treasury Curve Today Week Change
3 Month 2.11% -0.06%
6 Month 2.05% -0.13%
1 Year 1.92% -0.10%
2 Year 1.75% -0.11%
3 Year 1.71% -0.09%
5 Year 1.78% -0.06%
10 Year 2.04% -0.05%
30 Year 2.56% -0.03%
Short-Term Rates
Fed Funds 2.50%
Prime Rate 5.50%
3 Mo LIBOR 2.35%
6 Mo LIBOR 2.22%
12 Mo LIBOR 2.20%
Swap Rates
3 Year 1.715%
5 Year 1.753%
10 Year 1.969%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
June 25 S&P Corelogic CS 20-City Index Apr 2.50% 2.45% 2.68%
June 25 Richmond Fed Manufact. Index Jun 7 2 5
June 25 New Home Sales (MoM) May 1.8% 1.8% -6.9%
June 25 Conf. Board Consumer Confidence Jun 132.0 131.0 134.1
June 26 Durable Goods Orders Ex-Trans. May P 0.2% 0.1% 0.0%
June 27 Pending Home Sales (MoM) May 1.0% 1.0% -1.5%
June 28 Personal Income May 0.3% 0.3% 0.5%
June 28 Personal Spending May 0.4% 0.5% 0.3%
June 28 Core PCE (YoY) May 1.6% 1.5% 1.6%

calendar icon Top 5 Events for the Week

June 24 - 28, 2019

1. Geopolitical Developments – All Week
2. May Personal Income & Spending – Friday
3. May Durable Goods Orders – Wednesday
4. May Housing Activity – Tuesday/Thursday
5. June Consumer Confidence – Tuesday


1.  Geopolitical Developments – All Week

In addition to the aftershocks from the Fed’s shift to an easing posture, the market awaits the G20 meeting between Xi and Trump this week, and the volatile Iranian situation has to be added to the mix. While we don’t expect a “trade deal” to be announced following the Trump/Xi meeting this week, we do expect some positive news that negotiations are back on track and that should provide a kneejerk bump in stocks that may pressure Treasuries. That pressure is likely to be short-lived, however, as U.S./Iran tensions move from backburner to front and that should keep a safe haven bid alive and well in Treasuries.


2.  May Personal Income and Spending – Friday

Away from the geo-political angle, the May Personal Income and Spending numbers will generate a good bit of attention but we’ll have to wait till Friday to see them. Expectations are that incomes will increase 0.3% for the month versus 0.5% in April. Spending is expected to increase 0.5% versus 0.3% in April. Spending adjusted for inflation is expected to be up 0.4% versus a flat April. So, the all-important consumer looks to added to the spending increase in April and that implies a solid second quarter of consumer consumption. Finally, the Fed’s preferred inflation measure—core PCE— is expected to increase 0.2% for the month and 1.5% YoY versus 1.6% in April and that downtick will provide the Fed freedom to consider rate cuts in July given the docile inflation picture.


3.  May Durable Goods Orders – Wednesday

The May Durable Goods Orders report due Wednesday will provide another bit of evidence on whether the manufacturing sector is shown gathering signs of weakness, both home and abroad.  Recall the inventory buildup in the last two GDP releases and that overhang has been a headwind to the sector in the face of softening global demand.  Expectations are for the report to reflect some stabilization after a steeper falloff in April orders. The overall orders number is expected to be down  -0.2% versus -2.1% in April. Orders less the volatile transportation sector are expected to be up 0.1% versus unchanged the prior month.  Shipments of non-defense ex-air items (a proxy for business investment) are expected to be up 0.1% versus a flat April. In summary, durable goods orders for May are expected to show a slight increase over the soft April activity but nothing to indicate the sector is out of the woods.


4.  May Housing Activity – Tuesday/Thursday

The housing market was the first sector to exhibit a slowdown last year in the face of the Fed’s quarterly rate-hiking policy. With a pause now in place the Fed is looking to the housing market as an early indicator of whether the pause in rate hikes is allowing activity to lift in interest rate-sensitive sectors like housing. Pending home sales have the advantage of being based on contract signings versus closings so they are the timeliest indicator of market activity.  Expectations are for  pending sales of existing homes to post a modest 1.0% increase versus a –1.5% dip in April. Meanwhile, new home sales for May are expected to partially rebound after a dreadful April. Sales are expected to increase 1.8% but that will fail to recoup the steep –6.9% drop the prior month. Thus, housing looks to post gains over a weak April but the expected pick-up in activity will  be insufficient to fully offset the weak April results.


5. June Consumer Confidence – Tuesday

With two-thirds of the economy consumption-based assessing the confidence of the consumer is a key bit of information on possible future spending patterns. Expectations are for the confidence index to slip slightly to 131.0 versus 134.1 in April. The average over the last year has been 130.54 so a near on-average reading is expected which reflects a nice rebound off lower readings at the end of last year and the beginning of 2019. Thus, while the reading is expected to edge down some from April the consumer seems confident enough to continue his/her solid spending ways.


Consumer Confidence 


bar graph icon  Investment Yield Ranges Over Last Year


US TreasuriesFHLB Agency BulletsMortgage Backed SecuritiesMunicipalsUS Corporate - FinancialsUS Agency Swap Rates 

Source: Bloomberg



Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research



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