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Weekly Economic & Financial Commentary: Economic Growth Remains on a Positive Trajectory, For Now

Summary

United States: Economic Growth Remains on a Positive Trajectory, For Now

  • During December, payrolls rose by 223K while the unemployment rate fell to 3.5% and average hourly earnings eased 0.3%. Job openings (JOLTS) edged down to 10.46 million in November. ISM manufacturing fell to 48.4 in December, while the services index unexpectedly dropped to 49.6. Construction spending increased 0.2% in November. The U.S. trade deficit narrowed to $61.5 billion in November.
  • Next week: Small Business Optimism (Tue), CPI (Thu), Consumer Sentiment (Fri)

International: Fiscal Policy Has Brazil Off to a Rocky Start

  • Enhanced government spending has the potential to place Brazil’s sovereign debt burden on a more unsustainable trajectory. With Brazil’s public finances already in a precarious position and Lula now officially sworn into office, concerns regarding a lack of fiscal discipline are starting to materialize and shake confidence.
  • Next week: Mexico Inflation (Mon), Brazil Inflation (Tue), Central Bank of Peru (Thu)

Interest Rate Watch: Clear Message from December Minutes: Higher Rates for Longer

  • The minutes from the Fed’s latest policy meeting in December were released on Wednesday and highlighted a mildly-hawkish to neutral tone from Fed officials headed into last month’s meeting. What stands out to us is the Fed’s direct communication: Don’t underestimate its reaction function. Expect rates to remain higher for longer.

Credit Market Insights: The Housing Market is Collateral Damage

  • As the Fed continues its inflation fight, elevated mortgage rates have crushed affordability for potential homebuyers. The Mortgage Bankers Association (MBA) reported that refinance mortgage applications fell 86.6% year-over-year in the last week of December, and applications for purchase were down 42.4%. While home prices have started to slide, we do not expect price declines as severe as the housing bust.

Topic of the Week: House Arrest: What a Perilous Speaker Vote Means for the Budget

  • The U.S. House of Representatives continues its quest for a speaker. On Tuesday, the chamber went to a second ballot for the first time in a century after Representative Kevin McCarthy (R-CA) fell short of the votes needed to secure the speaker position.

Full report here.

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