The Market Today

October 25, 2021

Powell Says Fed Would Hike If Long-Term Inflation Expectations Become Unanchored


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Chicago Fed’s National Activity Index Declines: The Chicago Fed National Activity Index was weaker than expected in September, falling from +0.05 to -0.13.  The CFNAI is an aggregation of 85 different economic variables designed to be an indicator of changes in the overall economic landscape.  For example, when the CFNAI’s three-month average is above +0.70 following an expansion, a period of more rapid inflation is expected to occur.  The 3-month average for the CFNAI is now down to 0.25.

Dallas Fed Report; Facebook Kicks off Busy Week for Earnings: Corporate Earnings The Dallas Fed will report on manufacturing conditions in its region at 9:30 a.m. CT.  Kicking off a busy earnings calendar this week, Facebook will report after the close.  Also reporting this week are Google, Microsoft, Apple, Amazon, and many others. Last week’s earnings were very strong although concerns remain about the supply chain and inflation.  Intel’s CEO indicated on a CNBC interview that he expects the chip shortage to last into 2023.

WTI Crude Above Opening the Week Higher, Again: Monday continues to be a bad day for oil prices.  WTI crude has risen to over $85 per barrel in early activity, up sharply this morning for the fifth consecutive time to open a new week of trading.  Oil prices are now up 38% since late August and have become one more straw on the stack of inflation concerns.

 

OTHER ECONOMIC NEWS

ICYMI – October 22, 2021 Weekly Market Recap: Supported by earnings, the Dow and S&P 500 notched their first records since early September even as Treasury yields climbed on rising inflation expectations. The move up in rates began overnight Monday as yields in the U.K. shot higher after Governor Bailey said the Bank of England will “have to act” to keep elevated inflation from becoming imbedded in longer-term inflation expectations. Several Fed officials also sounded a bit more anxious about inflation. Governor Waller, a known policy hawk, said “a more aggressive policy response than just tapering may well be warranted in 2022” if inflation doesn’t begin to moderate soon. Chair Powell said Friday that supply chain issues have worsened and will likely linger into next year, keeping inflation higher for longer than expected. The Fed’s Beige Book and Markit’s October PMIs emitted a similar sentiment. Powell added that the Fed won’t hesitate to raise rates if longer-term inflation expectations become unanchored. Earlier Friday, five-year Treasury-implied inflation expectations hit 3.00%, their highest level in records since 2002. For the week, the 2-year yield rose 5.9 bps to 0.45%, the highest level since March 2020, as fed funds futures projected a higher rate path; the first fully-priced hike aligned with September’s meeting. The 5-year yield rose 7 bps to 1.20%, closing just shy of Thursday’s high since February 2020. The 10-year yield added 6.2 bps to 1.63% after climbing to within 4 bps of the pandemic peak of 1.74% from March 31. Click here to view the full recap.


TRADING ACTIVITY

Quiet Start for Global Trading: Global markets got off to a bit of a mixed start on Monday before a slate of tech earnings and decisions from a couple of major central banks that will serve as opening acts for next week’s Fed meeting. Continent-wide indexes in both Asia and Europe were little changed while Nasdaq futures rose 0.2%, leading marginal gains for U.S. index futures. Facebook will report earnings this afternoon as the opener of a week of big tech announcements. The company’s shares were down 1.3% before 7 a.m. CT. Treasury yields had moved higher, unwinding a portion of last Friday’s drop that occurred after Fed Chair Powell sounded a bit more concerned about supply issues keeping inflation higher for longer (more above). The Bank of Japan and European Central Bank will meet this week amid concerns about global supply disruptions weighing on growth and driving prices higher. Shorter yields in Germany dropped to new session lows after a measure of German business expectations fell to an eight-month low in October. At 7:30 a.m. CT, the 2-year Treasury yield was 0.2 bps higher at 0.46%, the 5-year yield had added 1.2 bps to 1.21%, and the 10-year yield had risen 3.0 bps to 1.66%.


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Economic Calendar

Date/Time(Central)IndicatorPeriodEstimateActualPriorRevised
10/26/2021 8:00 AMS&P/CaseShiller Comp-20 (YoY)Aug20.00%--19.95%--
10/26/2021 8:00 AMS&P/CaseShiller US HPIAug----19.70%--
10/26/2021 9:00 AMNew Home SalesSep759k--740k--
10/26/2021 9:00 AMNew Home Sales (MoM)Sep3.40%--1.50%--
10/26/2021 9:00 AMConsumer ConfidenceOct108.0--109.3--
10/27/2021 6:00 AMMBA Mortgage Apps.22-Oct-----6.3%--
10/27/2021 7:30 AMWholesale InventoriesSep P1.0%--1.20%--
10/27/2021 7:30 AMDurable Goods OrdersSep P-1.1%--1.8%--
10/27/2021 7:30 AMDurable Goods Ex. Trans.Sep P0.4%--0.3%--
10/28/2021 7:30 AMInitial Jobless Claims23-Oct290k--290k--
10/28/2021 7:30 AMContinuing Jobless Claims16-Oct2420k--2481k--
10/28/2021 7:30 AMGDP QoQ (Annualized)3Q A3.00%--6.70%--
10/28/2021 7:30 AMPersonal Consumption3Q A0.9%--12.00%--
10/28/2021 7:30 AMGDP Deflator3Q A5.3%---6.10%--
10/29/2021 7:30 AMEmployment Cost Index3Q0.8%--0.7%--
10/29/2021 7:30 AMPersonal IncomeSep0.0%--0.2%--
10/29/2021 7:30 AMPersonal SpendingSep0.5%--0.8%--
10/29/2021 7:30 AMPCE Deflator (YoY)Sep-0.2%--4.3%--
10/29/2021 9:00 AMU of Mich. Consumer ConfidenceOct F71.4--71.4--

Market Movements

CloseChange
Bond Contract158.281.00
CRB Index237.681.08
Dollar Index93.61-0.15
Dow Jones35,677.0273.94
Gold1,792.659.72
1 Month LIBOR0.090.00
3 Month LIBOR0.120.00
Crude Oil83.761.15
TermClosing YieldDaily Price ChangeCurrent YieldPrice Change
Today - 7:30am
3MO0.05%0.000.05%0.00
6MO0.06%0.000.06%0.00
12MO0.11%0.000.11%0.00
2YR0.45%0.130.45%0.00
3YR0.77%2.500.77%-0.25
5YR1.20%6.751.20%-1.25
10YR1.63%19.501.66%-8.00
30YR2.07%55.002.11%-28.50
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