The Market Expects A Significantly Increased Federal Budget Deficit. Also, This Week (Could) Get Crazy | (12.12.22)
"The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function." - F. Scott Fitzgerald
What You Need To Know Today:
• This afternoon (1:00 PM CT) the U.S. Department of the Treasury will report the updated Federal Budget Balance. This measures the difference in total value between the federal government’s income and spending over the course of the last month. A positive figure represents a budget surplus, whereas a negative number indicates a budget deficit. Heading into the release, the market expects the budget balance to come in at a deficit of (-$248.5B), considerably below last month’s balance of (-87.8B).1
TL;DR — Latest Fed Budget Balance will be released this afternoon. Market expects considerably larger deficit than last month.
• This week is shaping up to be a wild ride in general. Tomorrow we will see the latest Consumer Price Index reading and the very next day the Fed will release its statement following its two-day meeting. Right now, the market appears all but certain that the Fed will be raising the Federal Funds Rate by 0.50%, which is 0.25% less than the previous four rate hikes this year. If the Fed does hike rates by 0.50% we likely will not see any significant market reaction because it would be the action that is already “being priced in.” However, if tomorrow’s inflation reading comes in higher than expected we would see a more intense trading session as it would imply the need for more restrictive monetary policy from the Fed (larger rate hikes).
TL;DR — CPI tomorrow & next Fed rate hike Wednesday — buckle up (maybe)!
Chart Of The Day:
I have posted both an edition of The Homepage and a video on this topic so I will keep this one relatively brief — We should not be trusting unemployment report headlines without looking into the finer details. According to research from Pantheon Macroeconomics and the Challenger Job Cuts Report, layoffs are highly elevated (blue line) which indicates that we can expect an upcoming spike in jobless claims (black line).
Challenger Job Cuts Report (Layoffs) vs. Jobless Claims: (YoY/3month Avg)2
TL;DR — Layoffs are elevated, and higher jobless claims are coming.
Tweet Of The Day:3
Source: U.S. Department of the Treasury — Monthly Statement
Source: Twitter/@MacroAlf — The Macro Compass