Fed Speakers Rush to the Podium
The FOMC rate decision from last Wednesday will continue to influence trading especially as eleven Fed speakers stroll to microphones during the week and offer additional insight. The updated Dot Plot illustrated how the Fed is now divided into three factions. There is a faction of five that sees no more rate cuts this year while another faction of five really didn’t want to cut last week and a third faction of seven that does see another rate cut this year. More importantly, while there are 17 officials supplying dots there are only 9 voters. So determining the dots also carrying votes is key. In general, the voters this year tend towards the dovish side so it very well could be that of the 7 members looking for anther rate cut this year, many to most are voters with the two dissenters not wanting to cut last week rounding out the voting roster. Thus, our take is that while the median didn’t project another rate cut, those actually voting on policy more than likely are projecting another cut this year. Perhaps some of the speeches this week will add further illumination on the subject?
|Treasury Curve||Today||Week Change|
|3 Mo LIBOR||2.13%|
|6 Mo LIBOR||2.07%|
|12 Mo LIBOR||2.06%|
|Date||Statistic||For||Briefing Forecast||Market Expects||Prior|
|Sep 24||S&P CoreLogic 20-City HPA (YoY)||Jul||2.20%||2.10%||2.13%|
|Sep 24||Conf. Board Consumer Confidence||Sep||134.0||133.0||135.1|
|Sep 25||New Home Sales (MoM)||Aug||2.8%||3.2%||-12.8%|
|Sep 26||GDP Annualized (QoQ)||2Q T||2.0%||2.0%||2.0%|
|Sep 26||Advance Goods Trade Balance||Aug||-$73.5b||-$73.5b||-$72.3b|
|Sep 27||Personal Income & Spending||Aug||0.4%||0.4%||0.1%|
|Sep 27||PCE Core Deflator (YoY)||Aug||1.8%||1.8%||1.6%|
|Sep 27||Durable Goods Orders Ex-Trans.||Aug P||0.2%||0.2%||-0.4%|
|Sep 27||U of Mich. Consumer Sentiment||Sep P||92.1||92.0||92.0|
Top 5 Events for the Week
Sep. 23 -27, 2019
1. Fed and Trade Fallout – All Week
2. August Personal Income & Spending – Friday
3. September Consumer Confidence – Tues./Fri.
4. August Durable Goods Orders — Friday
5. August Goods Trade Balance – Thursday
1. Fed Rate Decision Fallout & Advanced Dot Plot Reading—All Week
The FOMC rate decision from last Wednesday will continue to influence trading especially as eleven Fed speakers (six of whom are voters) stroll to microphones during the week and offer additional insight. The divided nature of the Fed was a key takeaway especially as illustrated in the Dot Plot matrix below. We would, however, characterize it not so much as a divided Fed but a Fed with three factions. There is a faction of five that sees no more rate cuts this year while another faction of five really didn’t want to cut last week and a third faction of seven that does see another rate cut this year. The key here is to try and glean which dots belong to which official as all dots are not created equal. Most importantly, while there are 17 officials supplying dots there are only 9 voters. So determining those voters from those in the cheap seats, as it were, is key. In general, the voters this year lean dovish side so it very well could be that of the 7 members looking for anther rate cut this year most carry voting credentials with the two dissenters not wanting to cut rounding out the voting roster. Our takeaway is that while the median didn’t project another rate cut, those actually voting on policy are more than likely projecting another cut this year if information starts to indicate a stalling in economic momentum combined with docile inflation readings. So, we’re still comfortable in thinking another rate cut is coming. October may be too soon given the divisions on the Fed so target December.
2. August Personal Income & Spending –Friday
Given the reliance on consumer consumption that carried second quarter GDP, the August income and spending numbers will be watched closely for continued strength. For the month, income is expected to have increased 0.4% versus 0.1% in July. Meanwhile, spending is expected to have slowed a bit to 0.3% versus 0.6% in July but a still respectable rate. The Fed’s preferred inflation measure, core PCE, is expected to increase 0.2% for the month, same as in July, while year-over-year it’s expected to increase to 1.8% from 1.6% in July. The inflation trend is upward but is still expected to trail the Fed’s 2% benchmark which would allow the Fed some latitude to cut again before year-end if other economic indicators start to stall.
3. September Consumer Confidence Readings—Tuesday/Friday
If second quarter GDP taught us anything it’s that the consumer is carrying the ball right now. Given the outsized increase in consumer consumption during the quarter measuring the confidence of the consumer is critical to gauging their predilection to continue spending. In that regard the Consumer Board’s Consumer Confidence report tomorrow is expected to post a modest sequential decline to 133.0 versus 135.1 in August, while Friday’s University of Michigan Sentiment gauge is expected to print 92.0 matching the prior print.
4. August Durable Goods Orders–Friday
While the consumer has held up the economy in the second quarter, one sector that hasn’t done well has been manufacturing which has been weak under the impact of tariffs and global slowing. Durable goods are one component in the manufacturing sector so the orders for August will be watched for carefully. Overall orders are expected to decrease -1.1% versus a 2.0% increase in July. Orders ex-transportation are expected up 0.2% versus a decline of -0.4% in July. Shipments of capital goods non-defense ex-air ( biz investment proxy) are expected up 0.3% versus –0.6% in July. Thus, the slowing in the sector (ex-air) looks to have reversed some in August.
The monthly trade balance reports carry a little more weight now that the results are subject to presidential tweet. For August, the goods trade balance is expected to widen slightly to -$73.5 billion versus -$72.3 billion in July. The trade deficit has ranged from a twelve-month wide of -$79.9 billion in February to a narrow -$69.9 billion in December. The deficit was -$73.1 billion a year ago, so despite all the trade-related headlines and tariffs, the deficit is expected to remain virtually unchanged from twelve months ago.
Thomas R. Fitzgerald
Director, Strategy & Research