US: Fed minutes, new home sales and durable goods in the limelight - Scotiabank

Research Team at Scotiabank, suggests that in the absence of much else, this week’s main focus may be upon minutes to the FOMC meeting on November 2nd.

Key Quotes

“A lot has changed in a short while to make the minutes and next week’s data of lessened relevance now versus, say, ongoing attention placed upon signals from the Trump administration concerning priorities early in the mandate that begins on January 20th 2017.” 

“In addition to fresher Fed policy guidance (such as Yellen’s JEC testimony) and the US election, there are two other major reasons why the minutes to that meeting may be stale. Recall that the November 2nd statement sounded a little more hawkish on inflation but more cautious on consumer spending and avoided any heightened reference to the risk of a hike at the next meeting on December 14th unlike what they did last year in the statement preceding the December hike. Two major things have changed in the short while since then. One is that market measures of inflation expectations soared after the election. Two is that consumer spending may be registering a strong Q4 after the release of October retail sales and that could lead the Fed to upgrade its assessment of household spending again in future. Data dependence, meet volatility.”

“Data risk will be focused upon housing and investment figures. 

Durable goods orders will be updated for October on Wednesday. The headline figure is too often distorted by lumpy orders like aircraft and often gets dismissed.

What to watch will be core durable goods orders excluding transportation and defence. There had been a glimmer of hope in a pick-up in this key measure of broad business investment activity until a 1.2% m/m decline in September. That still left this metric higher in three of the past four months. October’s print will help inform whether the lift prior to September was an aberration, or whether the drop in September returned us to reality in yet another dashing of hope for a sustained recovery in business investment. The far grander debate going forward will be the extent to which tax incentives that may be advanced by a new US administration could overwhelm other drags on business investment such as spare US and global capacity on average across industries and uncertainty over the trade and investment rules of the game in NAFTA and the UK/EU.

New home sales (Wednesday) may get discounted by markets because they lag the post-election spike in mortgage rates that followed the (I think exaggerated and premature) impact on the bond market. Will mortgage rates fall again if the bond market correction reverses, or is this a sign of things to come for homebuyers who have suffered a significant erosion in homebuyer affordability after the election.”