Treasury Secretary and Fed Chair, All-in-One?

• Contractionary eurozone PMIs, both in services and manufacturing, have Treasury yields a touch lower this morning as the divergence between the US’s growth profile and the eurozone’s struggles widens. Even the UK saw its PMIs disappoint expectations while the services side clings to a 50.0 reading, right at the dividing line between expansion and contraction. We’ll see our S&P Global PMIs later this morning with expectations that the manufacturing sector improves from 48.5 to 48.9 while the services side remains healthy at a solid 55.0.  Currently, the 10yr Treasury is yielding 4.33%, down 2bps on the day, while the 2yr is yielding 4.33%, down 2bps.

 

• Trump has yet to pick a Treasury secretary, but the interviews have come fast and furious. Leading the pack is former Fed Governor Kevin Warsh. Also, there is reporting that Trump would hold the Fed Chair position for Warsh when Powell’s term expires in 2026. That offer (if it’s legit) seems to give him the inside edge. Marc Rowan, Apollo CEO, is the Wall Street guy, which is something Trump has always admired from afar, so having the upper hand in this situation may please him. A dark horse name has emerged in the form of TN Senator Bill Haggerty. He was the US ambassador to Japan during Trump’s first term, so he has that going for him, although having a Vandy law degree, as prestigious as that is, may not be the optimum background for Treasury secretary. Wall Street and investors at large could probably live with either of the candidates which is comforting given some of the other more unorthodox picks that have been made.

 

• We mentioned on Wednesday that the geo-political back and forth between Russia and Ukraine is likely to persist into January and that’s what we say yesterday. Russia launched an ICBM (fortunately without a nuclear warhead) into Ukraine, no doubt a message after Ukraine launched one of their recently acquired long-range missiles into Russia. Given the likely change in tone with the new Administration we expect more of this back and forth to continue over the next two months, and if it escalates in nature, expect more flight-to-safety trades as a result.

 

• Now for something more mundane than possible thermonuclear war. Yesterday’s initial and continuing claims numbers continue a trend we’ve been watching for a while. Initial Jobless Claims came in at 213 thousand, the lowest since last April as employers continue to resist wholescale layoffs. Also, this report carries a little more importance as it coincides with the November jobs report survey week. Thus, an early indicator that the November jobs report could see something of a bounce back from the storm/strike impacted October disappointment.

 

• Meanwhile, Continuing Claims moved higher yet again, this time to 1.908 million which is the highest since Nov. 2021. This drift higher supports the view that while firms are not aggressively laying off workers, they are also not aggressively hiring them as well. See graph below.

 

• We continue to believe the Fed will cut another 25bps at the December 18^th FOMC meeting, thereby fulfilling its September forecast of 100bps in cuts for 2024.  Despite the uncertainty about where the Neutral Rate currently resides, policy remains in restrictive territory, and as we’ve mentioned probably too many times, next year’s first quarter could see seasonally inspired higher inflation just as we experienced this year which would seem to be an ideal place to pause for a meeting or two. The futures market is mostly on board with that view with odds at 59% for a December cut but only 25% for a January cut.

 

• Yesterday, existing-home sales climbed 3.4% in October to a seasonally adjusted annual rate of 3.96 million. Sales advanced 2.9% from one year ago, the first year-over-year increase in more than three years (July 2021; +1.8).The median existing-home sales price rose 4.0% YoY to $407,200, the 16th consecutive month of YoY price gains. Recall, sales ranged from 6.0 million to 6.5 million prior to the Fed’s current hiking cycle. The inventory of unsold existing homes edged higher by 0.7% from the prior month to 1.37 million at the end of October, or the equivalent of 4.2 months’ supply at the current monthly sales pace. That’s still tight inventory as the pre-pandemic supply typically was in the 6-month range. It should also be noted that sales are counted when closed, so mortgage rates for most of these transactions were in the 6-handle range. We’ll see if activity slows in the coming months with mortgage rates back above 7%.

 

• Finally, we held a webinar on Wednesday covering our Economic Outlook for 2025 now that the election has been decided. You can find a link for the recording here. Also, if you would like a copy of the slide deck just let us know and we’ll gladly provide it.

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Continuing Claims Drift Higher to the Most Since 2021 – Employers Seem to be Cutting Back on New Hires

 

 

Initial Jobless Claims Continue to be as Exciting as Watching Paint Dry – Which is a Good Thing