Commentary prepared by Alloya Investment Services, a division of the wholly owned CUSO of Alloya Corporate Federal Credit Union. Alloya Investment Services is a leading broker/dealer consultant to credit unions.
Thursday, December 2, 2021 at 8:00 am CT
Commentary prepared by Tom Slefinger, SVP, Director of Institutional Fixed Income Sales, Registered Representative of ISI*, Alloya Investment Services
Other Market Indicators
|2s/5s Tsy Spread||0.56||-0.02|
|2s/10s Tsy Spread||0.79||-0.03|
|2s/30s Tsy Spread||1.12||-0.02|
Recap – Despite no catalyst, stocks, after being oversold, rallied alongside a broad-based recovery in risk assets. In premarket trade this morning, Dow futures were slightly in the green for most of the overnight trade, but around 5:30 am ET, swung to the red. Volatility reigns, day by day and hour by hour, as we shift to a new monetary and fiscal regime. After dropping more than 20% since late October, West Texas Intermediate (WTI) advanced 2.4% to $67.18 per barrel after OPEC+ signaled a willingness to adjust output plans if the pandemic drastically changes market dynamics. The dollar index is steady as a list of Fed officials, even some doves, is vocally pushing for a faster taper and an earlier return to a higher funds rate. Gold trading Spot at $1,773 per ounce, continues to waver near one-month lows and is heading for a third straight weekly decline.
Bond markets are quiet for the most part. The 10-year Treasury yield is steady at 1.43%. The 100-day trendline (1.41%) once again, is proving tough to pierce to the downside in the early going. Interestingly, despite the “risk on” tone in yesterdays' trading session, the 30-year Treasury yield is lower by 2 basis points at 1.75%.
In the meantime, Treasury Secretary Janet Yellen just joined Fed Chair Jerome Powell in saying that “I am ready to retire the word transitory”. The incessant hawkish talk has triggered a considerable flattening in the yield curve which is the bellwether forecaster for future economic growth. The 2s/10s spread is now only 82 basis points - the narrowest since January. The Treasury curve (5s/30s) is just 56 basis points - the narrowest spread since March 2020.
Monetary officials are continuing to hold the view that U.S. demand is very strong, even as consumer confidence sags for reasons beyond inflation and buying intentions falter to recessionary levels. To wit: when Dollar General misses like it did in its Q3 numbers and cuts guidance for same-store sales, you know that consumer spending is on the cusp of heading lower.
Good news to end the week! As the COVID-19 Omicron variant spreads, it is becoming evident that the symptoms are mild and that this is not a repeat of the Delta variant. A U.S. government shutdown tomorrow was averted by a bipartisan 69-28 vote to keep the funding alive.
It’s the first Friday of the month and that means jobs day! The consensus forecast is that more than 500,000 positions were added for the second month in a row in November. The unemployment rate is seen ticking lower to 4.5% and the average annual earnings growth per hour is rising to 5%. While all monthly jobs reports are important, today’s numbers have gained extra significance after Fed Chair Powell signaled earlier this week that the central bank may accelerate the wind-down of pandemic stimulus. Also today, U.S. services and composites Purchasing Managers’ Index (PMI)s for November are at 9:45 am ET, with Institute for Supply Management (ISM) services for the month at 10:00 am ET. Factory and durable goods orders for October are also at that time.
Have a great weekend!
November 29-December 3, 2021: The Week Ahead
Future Fed Expectations
|Select Probabilities based on the Futures|
|Probability of Fed Funds rate HIKE on December 15, 2021||1%|
|Probability of Fed Funds rate HIKE on January 26, 2022||2%|
**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.
The information contained herein is prepared by ISI Registered Representatives for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Alloya Investment Services to discuss your specific situation and objectives.