The Market Today

Vining Sparks 2022 Economic Outlook Webinar – Today


by Craig Dismuke, Dudley Carter

2022 ECONOMIC OUTLOOK

Vining Sparks 2022 Economic Outlook Webinar: We will host our 2022 Economic Outlook webinar this morning at 10 a.m. CT.  To register, please click here.  During the presentation, we will look at the current state of the economy and dig into the imbalances which are threatening the long-term stability of the expansion. The ability of the global supply chain to heal and labor supply to return will determine if the Fed is able to exit their policies gradually enough to not cut off the expansion.


TODAY’S CALENDAR

Small Businesses Remain Challenged by the Labor Market and Inflation: Small business confidence inched up from 98.4 to 98.9 in the NFIB’s December report.  The overall tone of the report was slightly improved with the outlook for the economy, expectations for sales, and plans to hire all rising. The percentage of small businesses reporting paying higher wages is now up to 48%, the highest level on record.  The biggest obstacles facings small businesses continue to include finding workers, rising wages, and inflation.  The percentage of respondents citing finding labor or the cost of labor as their single biggest challenge held steady at 38%.  The percentage citing inflation as their single biggest challenge rose from 18% to 22%, up 20 points since the beginning of 2021 and the highest level since 1981.

Powell’s Confirmation Hearing: President Biden nominated current Fed Chair Jerome Powell in November to serve a second term at the helm of the U.S. central bank. Powell will appear before the Senate at 9 a.m. CT this morning for his confirmation hearing. The Fed released Chair Powell’s prepared introductory remarks late Monday afternoon. Powell will note fast economic growth and a strong labor market while acknowledging that persistent imbalances have kept inflation elevated. He will tell the committee that the Fed will use its tools “to prevent higher inflation from becoming entrenched.”


OTHER ECONOMIC NEWS

Fed’s Clarida Calls It Quits Early: Fed Vice Chair Richard Clarida announced Monday that he would resign his seat on the Fed Board on January 14, a couple of weeks before his term was set to expire at the end of the month. Clarida has been caught up in a broader trading scandal at the Fed for personal trades he executed early in the pandemic as the Fed readied to implement emergency procedures to support markets and the economy. President Biden has nominated current Fed Governor Lael Brainard to serve as the Fed’s next Vice Chair, with her confirmation hearing before a Senate committee scheduled for Thursday morning.


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Another Lockdown in China: While accumulating evidence indicates Omicron is comparatively less severe than earlier strains, it will still have some impact on the global economy. One particular concern continues to be around its effect on the global supply chain. China locked down a city of five million residents Tuesday after discovering a small cluster of infections that included a couple of cases of the Omicron strain. China has also implemented a partial lockdown in a key port city because of identified infections.


TRADING ACTVITY

Volatile Start to 2022 Continues into Second Week: Markets remained volatile Monday as investors continued to contemplate shifting Fed policy amid fast inflation and an increasingly tight labor market. The 10-year Treasury yield stormed 25 bps higher last week following the release of hawkish minutes from the Fed’s December meeting and after the latest payroll data included another surprisingly sharp drop in unemployment that was paired with firmer-than-expected wage growth, indications the labor market in tightening at a faster-than-expected rate. Continuing the prior week’s trend, the 10-year yield had risen further and crossed above 1.80% during Monday’s European session, applying further pressure to U.S. equity futures. After selling off overnight, losses for the major equity indices deepened early in U.S. trading. The S&P 500 fell as much as 2.0% as the Nasdaq slumped more than 2.7%. Both indices, however, staged a marked turnaround just before lunch and climbed into the close. The S&P 500 cut its loss to 0.1% while the Nasdaq managed a marginal gain. Treasury yields diverged amid the equity swings. The 10-year yield gradually declined to end the day 0.2 bps lower at 1.76%, near its session low. The 2-year yield, however, pressed higher throughout the day, closing up 3.2 bps at 0.89%, just below its session peak.

The Treasury curve continued to flatten overnight and stock index futures extended the positive momentum from Monday afternoon to capture small gains ahead of Tuesday’s U.S. open. The 2-year Treasury yield had earlier added 3.6 bps to 0.93%, setting a new high mark since February 2020. The 5-year Treasury yield rose 2.2 bps to 1.54%, a new high level since January 2020. A higher close for the 5-year yield Tuesday would be its seventh consecutive daily increase, matching the longest streak since September 2019. Longer yields, however, remained subdued after calming Monday following last week’s rapid rise. The 10-year yield was 0.5 bp higher at 1.77% while the 30-year yield inched 0.5 bp lower to 2.08%. Tech staged the sharpest turnaround Monday afternoon and continued to lead the overnight recovery. Nasdaq futures were 0.35% higher at 7:00 a.m. while the S&P 500 added 0.2% and the Dow edged up 0.1%.


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