US data improves, Italian drama

Markets expect dovish signal from Fed

The Fed’s first policy meeting of the year should be a dovish affirmation that signals they are nowhere near talking ready to talk about tapering bond purchases.  Considering the overall robustness of the US economy despite the COVID winter wave, financial markets seem firmly convinced is not budging if you take a look at the 10-year Treasury yield, which remains relatively depressed at around the 1.04% level.  The Fed’s bruises from the ‘taper tantrum’ of 2013 have not fully healed and will likely allow them to convince Wall Street they will be the last major central bank to scale back accommodation.  Considering all the froth in the market, a tantrum seems inevitable, but that should not be until next year.

US Data

The S&P CoreLogic Case-Shiller housing price data for November confirmed what we already knew about the housing market, it is the bright spot of the economy and remains hot.  Property values in 20 US cities jumped 9.08%, the largest increase since May 2014.  Low mortgage rates and millennials looking to buy their first homes continue to keep this sector booming.

Consumer Confidence in the US continues to slowly stabilize and remains very distant from their pre-pandemic levels.  The present situation component declined from a revised 87.2 to 84.4, while the expectations survey improved from a revised 87.0 to 92.5.

The US consumer became a little more optimistic in January after the government signaled they will be sending more checks.  Expectations will grow for the consumer confidence to rebound sharply once vaccine rollouts improve and if virus variant concerns ease.

Italy

Italian politics are not having much of a negative impact on the euro.  PM Conte offered his resignation after losing his Senate majority, complicating the government’s effort to provide the country with more support during a recession that is plagued with lingering COVID concerns.  Conte’s resignation appears to be motivated by avoiding a parliamentary defeat.  He is positioning for a third attempt at forming a government, but it is unclear if President Mattarella will opt for someone else.  The risks are growing that Italians will have to go to the polls and this political uncertainty will weigh on Italy’s economic recovery.

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