Monday | September 29, 2014
- Multiple Fed Presidents called for patience as the central bank weighs when to raise rates, arguing moving prematurely poses a greater risk to the economy than waiting too long. New York Fed President Dudley said the economy may need to "run a little hot," allowing the jobless rate to dip below the Fed's estimate of full employment to increase inflation. Chicago Fed President Evans echoed this sentiment and stated, "We should be exceptionally patient in adjusting the stance of US monetary policy - even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives".
- Bond yields rose across the curve on Friday on the back of strength in the equity markets and after Bill Gross, co-founder and CIO of PIMCO (the largest bond fund) resigned to join Janus Capital Group Inc. There is concern that Gross' departure could prompt PIMCO to sell Treasuries which put additional pressures on rates. Notably, rates in the belly of the curve were 3-4 bps higher as market participants speculated that PIMCO bond outflows could be 10-30%.
- While economic data last week was mostly positive, the releases were not a key driver of rate movements. The third revision to Q2 Annualized GDP printed in-line with expectations at 4.6%, up from the second revision of 4.2%. Of note, business investment increased at a 9.7% pace, up from a previously estimated 8.4% rate. Also, new home sales increased 18.0% in August, while existing home sales declined 1.8%. The gap continues to narrow between the weakness in demand for new and existing home sales.
- Market participants will focus on the release of the Jobs Report this Friday. The August print of +142k was viewed by many to be an aberration, analysts will pay close attention to the revision. Current expectations are for +215k jobs to be added to the economy and for the Unemployment Rate to remain at 6.1% for September.
- This month's Employment report will be of particular importance as another disappointing job's number may cause rates to decrease reflecting a weakening in the economy. Alternatively, a report in line with expectations would indicate that last month's print was an anomaly and the economy is gaining momentum. Yellen cautioned during her press conference two weeks ago that the Fed's commitment to keep interest rates near zero for a "considerable time" could change if economic performance continues to exceed expectations.
- In addition to the Employment Report, this week will feature reports on ISM Manufacturing, Consumer Confidence, Trade Balance, ADP Employment Change and Factory Orders. Of note, ADP Employment Change is expected to remain unchanged at +204k. Additionally, Factory Orders are expected to decline 9.0% after a 10.5 increase in the prior month.
The information represented herein was obtained from various sources, which we believe to be reliable. Neither the information presented nor opinions expressed constitutes an offer to buy or sell any security. And it is not intended to guide the investor on which securities to buy, or when to buy or sell.