Trade Talks and Impeachment Hearings
With Thanksgiving looming around the corner, markets will start to become distracted and this week offers plenty of opportunity to lose focus. The main events for the week will continue to be the oft-mentioned US/China trade talks along with the impeachment hearings. The risk-on optimism of an imminent trade deal gave way last week to a more suspect outlook. That reassessment contributed to a rebound in Treasuries, and while we think most of the good news from a Phase One trade deal is already in equity and Treasury prices, if an announcement comes this week expect a final boost off the headlines. We don’t expect, however, that Treasury pressure will be enough to push 10yr yields over 2% unless economic numbers decidedly improve. Another D.C. development will be the release of the minutes from the October 30 FOMC meeting on Wednesday, but given Chair Powell’s congressional testimony last week the minutes are not likely to offer anything that will be market moving. As for honest-to-goodness economic numbers, October housing starts and permits are due tomorrow while Leading Indicators and existing homes sales are due on Thursday. Expectations are for solid housing numbers while Leading Indicators are expected to be a bit more mediocre.
|Treasury Curve||Today||Week Change|
|3 Mo LIBOR||1.90%|
|6 Mo LIBOR||1.92%|
|12 Mo LIBOR||1.96%|
|Date||Statistic||For||Briefing Forecast||Market Expects||Prior|
|Nov 18||NAHB Housing Market Index||Nov||71||71||71|
|Nov 19||Housing Starts (MoM)||Oct||5.1%||5.1%||-9.4%|
|Nov 19||Building Permits (MoM)||Oct||-0.4%||-0.6%||-2.4%|
|Nov 20||FOMC Meeting Minutes||Oct 30||NA||NA||NA|
|Nov 21||Philly Fed Business Optimism||Nov||6.1||6.0||5.6|
|Nov 21||Leading Indicators||Oct||-0.1%||-0.2%||-0.1%|
|Nov 21||Existing Home Sales (MoM)||Oct||
|Nov 21||U. of Michigan Sentiment||Nov F||95.7||95.7||95.7|
|Nov 22||Kansas City Fed Manuf. Activity||Nov||-2||-2||-3|
Top 5 Events for the Week
Nov 18 - 22, 2019
1. Trade & Impeachment Developments –All Week
2. FOMC Meeting Minutes –Wednesday
3. October Leading Indicators –Thursday
4. October Existing Home Sales –Thursday
5. October Housing Starts & Permits –Tuesday
1. Trade & Impeachment Developments—All Week
The positive vibes of a possible US/China trade deal were dimmed last week as the absence of announcement raised new concerns about the prospects for the deal and that contributed to the positive tone in Treasuries. As we mentioned last week, we think most of the good news from a Phase One trade deal is already in equity and Treasury prices, but if an announcement of a deal comes this week expect a final boost off the headlines. We don’t expect, however, that Treasury pressure will be enough to push 10yr yields over 2% unless economic numbers decidedly improve. Meanwhile, public impeachment proceedings will continue, but as for now the market remains blissfully unconcerned and until the process moves to the more pivotal Senate trial we expect that blissfulness to continue this week.
2. FOMC Minutes from October 30th Meeting -Wednesday
The minutes from the October 30 FOMC meeting are due on Wednesday but given Chair Powell’s congressional testimony last week the minutes are not likely to offer anything that will be market moving. Instead, we are likely to get some insight into the outlook for policy as we head into 2020. The first meeting of the new year will be on January 30 and by then the Fed will have numbers for the holiday selling season and most likely a trade deal, of some sort. We expect the consumer to continue to carry the ball, and so it looks to us that any move by the Fed will not come until the late spring or early summer. The minutes, however, may give us more insight into that outlook.
3. October Leading Indicators—Thursday
The Conference Board’s Leading Indicators Index is a compilation of metrics that tend to foretell economic direction, and it is particularly useful as a predictor of recessions. The index always falls well below zero prior to a recession and earlier in the year the index was flirting with the zero-level and printed a –0.3 in June. The index, however, rebounded later in the summer and would need to move below -1.0 to provide a reliable recession signal. That being said, the October number is expected to drift lower to –0.2 versus September’s -0.1. If the index matches expectations it will be a signal that the economy has slowed and is flirting with an early-stage recession signal.
4. October Existing Home Sales—Thursday
The dip in September sales activity followed several months of improving numbers but expectations for October are that momentum should return to the housing market. Existing home sales account for about 90% of housing activity and Thursday’s existing sales number is expected to increase 2.0% to 5.49 million units annualized. The average over the past year has been 5.27 million so a decent gain over the yearly average is expected in addition to the sequential increase.
Housing was on a bit of a roll in recent months until September but October’s Housing Starts & Permits numbers are expected to rebound. Housing starts for October are expected to increase 5.1% to 1.32 million annualized while permits are expected to decrease –0.6% to 1.38 million annualized. The average in starts over the past year has been 1.23 million and permits 1.32 million. Thus, both October readings are expected to exceed annual averages indicating continued momentum in the sector.
Thomas R. Fitzgerald
Director, Strategy & Research