Weekly Rate Watch - Post food coma

We are coming off of a short week and heading into a packed one. Let’s first discuss the calendar.

We hear from a few Fed members, get a variety of economic data, the Fed’s Beige Book is released, and finish the week with the unemployment rate on Friday.

Monday

• St Louis Fed President Bullard interviewed by MarketWatch
• NY Fed President Williams speaks at the Economic Club of NY

• US Home Price Index
• Consumer Confidence Index

• ADP Employment Report
• Real GDP (revision)
• Job Openings/Quits
• Pending Home Sales
• Fed Governor Bowman Speaks
• Fed Governor Cooks Speaks
• Fed Chair Powell Speaks
• Fed’s Beige Book

• Initial & Continuing Jobless Claims
• PCE Price Index
• Disposable Income
• Consumer Spending
• Construction Spending
• ISM Manufacturing Index
• Fed Vice Chair Barr Speaks

• Nonfarm Payrolls
• Unemployment Rate
• Chicago Fed President Evans Speaks

Monday starts off with Fed President Bullard speaking. He is a notable hawk whose speeches have moved markets in the past. Here is an updated list of Fed members and their stances.

Remember, a hawk is one who wants to raise rates and practice quantitative tightening. A dove, on the other hand, is one who wants to cut rates and do quantitative easing.

There are not many doves at the moment, but I’m willing to predict we see the scales tip more in the doves’ favor as the next few months of economic data come out.

As part of my long-term thesis, I have been talking about the inevitable recession that will snag headlines and force the Fed to pivot. In the beginning, I said how I expect this to take place during the Biden reelection campaign to increase their odds of being reelected (cut rates = market happy= keep president).

But the Fed should be acting sooner than that. Take a look at the following charts.

This first one is of consumer savings. (See Chart Above)

Notice how we are at decade lows of under a 5% savings rate.

However, if we take a look at consumer debt, we are setting new decade highs.

This inverse relationship does not bode well in an environment of increasing rates.

We get unemployment numbers on Friday. Last month we had a tick up of 0.2%. To me, the only way these numbers improve is if they discount those who have been out of work and no longer searching.

But with all of the massive layoffs that have taken place recently, the unemployment rate will increase soon thereafter.

Chart Check (See Above)

Revisiting the 10yr, we can see that we are now retesting the October support I mentioned 2 weeks ago.

The range I was looking for was in between 3.57 – 3.65. We are currently at 3.639 which means we may be able to drop further, giving us lower rates.

However, with the Fed rate hike scheduled on December 14^th, I don’t anticipate the 10yr staying this low naturally for long.

Let me know your thioughts.