Election and FOMC Meeting Week Comes to an End

The rate curve flattened to close out a volatile week. Swap rates rose by 4-6 bps at the front end of the curve today, pushed higher by strong consumer sentiment data, while the long end fell ~4 bps. Today’s price movements extended the week’s curve inversion: the short end of the curve rose 5-7 basis points while the long end declined 3-5 basis points. Trump’s victory drove a 10-20 bp increase in rates while Thursday’s FOMC meeting and 25 bp rate cut had minimal impact on price action. Chair Powell’s offered ambiguous comments on the path forward and stated that the election would have no impact on near-term policy decisions.

US consumer sentiment surges. Preliminary data for November, released today by the University of Michigan, showed consumer sentiment climbed to its highest level since April. The overall sentiment index climbed from 70.5 in October to 73, above estimates of 71. While views on current conditions fell slightly, the overall increase was largely due to a surge in positive expectations about the future, with the expectations index climbing from 74.1 last month to 78.5 in November. Robert Frick, corporate economist at Navy Federal Credit Union said, “Consumers are expecting economic progress for them, including cooling inflation and lower interest rates.”

Consumer price growth is generally expected to remain flat in October from September. Core consumer price index (CPI) data is expected to be 0.3% month-over-month and 3.3% year-over-year (YoY) in October. 3.3% YoY CPI would match September’s report and be the 6th consecutive print within 3.2%-3.4%. Headline YoY CPI is expected to climb from 2.4% in September to 2.6% in October. Meanwhile, producer price index data is also forecast to show lagging inflationary progress; all headline and core readings are expected to accelerate from September.