Country-Wide Lockdown, Fed Chair, Turkey Prices on the Rise

With Covid caseloads on the rise, Austria returned to the onerous restrictions of 2020. Citing a shortage of intensive care beds, officials have re-imposed a national lockdown on its citizens. The unpopular measure will require restaurants, bars, theaters, Christmas markets and non-essential shops to remain closed for 10 days initially, but reports suggest officials are willing to expand the measure to as many as 20. The government has also made it mandatory for all citizens to get vaccinated as of February 1. According to Johns Hopkins University data, Austria has the lowest vaccination rate in Western Europe, with 66% of its population fully vaccinated.

Back at home, prices of everything are on the rise including the cost of turkeys ahead of the Thanksgiving holiday. According to the Farm Bureau, average turkey prices cost 24%, or $4.60, more than last year at $23.99, cranberries are up 11%, or $0.29, at $2.98, dinner rolls cost 15% more, or $0.39, at $3.05, pie crusts are 20% higher, or $0.49, at $2.91, and russet potatoes and sweet potatoes are up 16%, or $0.41, at $2.96, and 4%, or $0.12, at $3.56, respectively.

Equities ended the week mixed on Friday with the Dow at 35,601.98, down 268.97, or 0.75%, the S&P 500 at 4,697.96, down 6.58, or 0.14%, while the Nasdaq closed at 16,057.44, up 63.73, or 0.40%.

This morning, however, equities are trading higher with the Dow up 0.42% at 35,698 as of 9:26 a.m. ET following the Powell announcement.?

The 10-year fell 4bps on Friday to close at 1.55%, down 7bps for the week.

This morning, the 10-year is up 5bps, trading at 1.60% as of 9:21 a.m. ET.

As we long expected, according to the White House, President Biden will nominate current Federal Reserve Chairman Jerome Powell for a second term as leader of the central bank. Lael Brainard, who was also being considered for the role and favored by progressives in Washington, is being nominated for a vice chair position at the central bank.

While some in the Democratic Party may be disappointed by the President’s decision, a second Powell term will likely offer increased assurance and certainty for investors.

From a policy perspective, as we have written several times before, against the backdrop of such extraordinary inflation reads, the leadership at the Fed actually matters less than many anticipate, at least in the near term. Both Powell or Brainard would likely maintain the asset reduction pathway previously discussed and move on to rate hikes by the end of 2022. A rise in inflation expectations, nevertheless, indicates market players are less convinced the Fed – regardless of whom is at the helm – will move at an appropriate pace to quell the upward momentum.

On Friday, the economic calendar was empty.

This morning, the Chicago Fed National Activity Index rose from -0.18, revised down from -0.13, to a reading of +0.76 in October, a three-month high. According to?Bloomberg, the index was expected to rise to a reading of 0.10 at the start of Q4.

The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In October, 61 of the 85 monthly individual indicators made positive contributions, while 24 made negative contributions.

Also this morning, existing home sales unexpectedly rose 0.8% in October from 6.29m to 6.34m, a nine-month high. According to?Bloomberg, existing home sales were expected to decline 1.8% at the start of Q4.

In the details, single family sales rose 1.3% while multi-family sales declined 2.9%. Year-over-year, existing home sales fell 5.8% in October, the third consecutive month of decline. Despite a rise in sales, the months’ supply of existing homes remained at 2.4 months for the second consecutive month, the lowest level since April. From a price standpoint, the median cost of a previously owned home rose 13.1% in October from a year earlier to $354k.

Tomorrow, the Richmond Fed Index is expected to decline from 12 to a reading of 11 in November.

Later this week, on Wednesday, initial jobless claims are expected to decline from 268k to 260k in the week ending November 20, GDP is expected to be revised up from 2.0% to 2.2% in the third quarter, and durable goods orders are expected to rise 0.2% in October following a 0.3% decline the month prior.

Also on Wednesday, personal income is expected to rise 0.2% and personal spending is expected to jump 1.0% in October. The PCE is expected to rise 0.7% in October and 5.1% over the past 12 months, and the core PCE is expected to increase 0.4% in October and 4.1% year-over-year.

-Lindsey Piegza, Ph.D., Chief Economist