Fed may disappoint today, retail sales slump

After months of the Fed telling Congress to deliver more stimulus, it seems lawmakers will finally get something done this week.  US stocks are slightly higher as stimulus bets got boosted following declines in retail sales, flash PMIs and homebuilder confidence.  The next few hours should see stocks remain in wait-and-see mode to see if the Fed will only offer changes in forward guidance and not signal an immediate change in QE purchases or a move to buy at the long end of the curve.  Treasury yields are slightly higher so financial markets might start to be pricing in no action from the Fed.  The Fed is expected to tie their level of accommodation to employment and inflation, likely meaning interest rates won’t rise until the end of 2022.  Hopes for an increase in asset purchases seem unlikely and it seems like a coin flip if they will adopt Yield Curve Control this meeting.

Retail Sales points to weak consumer spending

Spending in the fourth quarter is taking a big hit.  The November retail sales report confirms fears that the US consumer is weakening.  This doesn’t mean the holiday shopping season will be a bust, but that large parts of the economy remain fragile.  A weaker consumer should provide added pressure for Congress to wrap a relief bill this week.

PMIs point to growth

The US flash PMI readings confirmed the obvious, restrictive measures in December are leading to much slower business activity.  The manufacturing and service sectors are still expanding but concerns are growing it will get much uglier over the next few months.

Housing a bright spot

The NAHB homebuilder survey showed builder confidence declined from record highs but is still robust.  The housing market remains the bright spot of the economy and the winter months undoubtedly were going to see demand peak.  COVID vaccine execution will take most of next year, so it is still possible housing will remain very strong throughout the first half of next year.

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