Capital Markets Update for the Week of 9/27/21

Those preaching higher rates for the entirety of this calendar year may finally have a reason to rejoice. The 10-year U.S. Treasury yield is now at its highest level since the start of July after the Federal Reserve left monetary policy unchanged following their meeting last Wednesday, but began to set expectations as to when they may begin to reduce asset purchases. Expectations are for asset purchases to be wound down by mid-year next year and the updated dot plot shows the Fed may begin to tighten monetary policy towards the end of 2022. A few additional members now see a rate hike in 2022: odds are now around 50-50 for a rate hike next year.

Meanwhile, housing data released last week showed existing home sales softened in August while new home sales increased slightly. Both new and existing home prices were significantly higher than they were twelve months ago, which may be a reason that new home sales are down nearly 25 percent from a year ago. Existing home inventory remains tight at 2.6 months’ worth and new home inventory increased to 6.1 months. Housing starts for single family homes declined 2.8 percent in August to a 1.076-million-unit annual rate while permits were up a scant 0.6 percent. September’s survey by the National Association of Homebuilders showed homebuilder confidence has increased.

This week’s September month-end and quarter-end calendar may be overshadowed by what is going on in Washington D.C. A $1 trillion infrastructure bill awaits consideration in the House today, a $3.5 trillion social policy and climate change measure is still being drafted, and a possible government shutdown looms on Friday followed by a potential debt crisis next month. On the data front, it is a jam-packed week with markets receiving updates on durable goods, home prices, consumer confidence, pending home sales, final Q2 GDP, Chicago PMI, PCE, ISM manufacturing, construction spending and Michigan sentiment. Today’s economic calendar is already underway with August durable goods orders (strong at +1.8 percent, but ex-transportation only +.2). Later this morning brings Dallas Fed Texas manufacturing for September and a Treasury auction of $61 billion 5-year notes. We also receive remarks from a couple Fed speakers with Chicago’s Evans and New York’s Williams both taking the stage. We begin the week with Agency MBS prices down/worse .250 and the 10-year yielding 1.51 after closing Friday at 1.46 percent on continued optimism about worldwide economic conditions.

Market Commentary by Rob Chrisman