US Credit Mkt Wk Ahd: Relative Quiet, IP, Claims, Powell Vote

Relative quiet in the shortened week ahead, Tuesday start following Martin

Luther King holiday closure Monday.

Following last week's December CPI and Retail sales data, the upcoming economic

releases are rather limited, highlights include Industrial Production on

Wednesday (0915ET), Housing Starts and Weekly Jobless Claims on Thursday morning

(0830ET) and University of Michigan Sentiment on Friday (1000ET).

Federal Reserve speaker engagements are rather limited as we near the January

20-February 1 blackout with the first Federal Open Market Committee meeting on

January 30-31.

Chicago Federal Reserve president Charlie Evans and Dallas Federal Reserve

president Robert Kaplan will participate at the "American Council of Life

Insurers Exec Roundtable" in Florida Wednesday at 1500-1515 (audience/media

Q&A).

Cleveland Federal Reserve president Loretta Mester will speak on monetary policy

communication at "Tangri Lecture at Rutgers University" in New Jersey at 1630ET

audience/media Q&A).

The U.S. Senate Banking Committee will vote on Jerome Powell's Federal Reserve

chair nomination at 1000ET Wednesday, as well as Fed Governor Randy Quarles'

14-year term.

Limited issuance from the U.S. Treasury with $45B 4Wk, $48B 3M and $42B 6M bills

auctioned Tuesday and $13B 10Y TIPS new issue auction on Thursday afternoon at

1300ET.

Earlier Thursday, the U.S. Treasury will announce next week's 2-, 5- and 7Y note

auction size (likely unchanged at $26B, $34B and $28B respectively) as well as

the 2Y FRN at 1100ET ($15B est).

Dealer opinions on next week's economic data and forward rate views vary as

always.

     From Credit Suisse economists: 

- Industrial production "growth should accelerate in December, with headline

growth reaching 0.7% MoM."

- Housing starts "are likely to remain steady in December after two months of

gains. Homebuilder sentiment has not been impacted by the tax bill, as current

homebuilder sentiment is the highest level since 1999. 

- Consumer Sentiment to tick up slightly in January to 96.0 from 95.9 in

December. The measure of long-run inflation expectations was 2.4% in the final

December reading, and has been slowly trending lower since 2014.

BNP Paribas economists expect "strong industrial production print...to be the

highlight of a relatively light week of data," while the "government stopgap

funding bill to expire on Friday the 19th."

Looking ahead, the "theme of a slow pick-up in core inflation is most likely

with the trough in core prices expected in February," BNP said "though at a

slightly higher level than we previously thought. By April we see core inflation

moving north of 2% and hovering in the 2.2-2.3% range for the remainder of the

year."

Jefferies economists posit the passage of the tax bill "will lead to improved

business and consumer sentiment, with increases in the University of Michigan

Consumer Sentiment index as well as the New York and Philadelphia Fed indexes."

On housing starts, however, Jefferies suspects a "good deal of

uncertainty...because poor winter weather may have limited continued

post-hurricane rebuilding activity in the South."

Jefferies expects a "solid increase in industrial production and capacity

utilization as manufacturing activity picked up and utility usage rebounded."

Views on the month end FOMC policy announcement and beyond.

Scotiabank economists said there is "plenty left in the tank for rate hikes"

from the Fed this year. Scotiabank estimates three hikes this year in addition

to "two more next year at which point a terminal neutral rate of 2.75%% will be

reached. This is consistent with our belief that the real neutral policy rate

lies under 1%."

TD Securities strategists are also toeing the Fed policy line, upping their call

from two to three rate hikes this year with "risks are roughly balanced between

downside and upside for the number of hikes this year, in our view."

TD estimates another two hikes in 2019 and "expect the funds rate to peak in the

vicinity of 3% this cycle, modestly overshooting the Fed's estimate of the

longer-run neutral rate."

TD also revised their "front-end Treasury yield forecasts higher, but leave our

end-2018 10yr yield forecast unchanged at 2.65%. We look for FX reserve

accumulation, low global rates, and low market terminal expectations to support

a further flattening of the 5s30s curve."

BNP posited the "discussion about shifting the Fed's target has increased as

economists fret about a possible Fed lack of ammunition to fight the next

downturn, while it consistently undershoots 2% now."

"Inflation targeting was a great monetary answer when the key question was how

to cure too high inflation, but central banks are fighting the last war. It has

created financial instability. Temporary inflation overshoots face challenges -

by definition they will not change long-term inflation expectations. 1930s style

commitments to high inflation could work."

Meanwhile, the Fed continues to gradually reduce its $4.5 trillion balance sheet

($4.2 trillion in U.S. Treasuries and Agency MBS.) Monthly Fed reinvestment caps

consistent with the FOMC Sept. 20 decision and June 2017 addendum:

     MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS

US TREASURIES.../AGENCY MBS/MONTH CAP 

- Oct-Dec 2017.. $6 billion./$4 billion 

- Jan-Mar 2018.. $12 billion/$8 billion 

- Apr-Jun 2018 $18 billion../$12 billion 

- Jul-Sep 2018 $24 billion../$16 billion 

- From Oct 2018** $30 billion $20 billion

     - Calendar of next week's market events (data, Fed speakers): 

- Jan 15 US Mkts closed, observance of Dr. Martin Luther King Jr. Day

- Jan 16 Jan Empire Manufacturing Index (18.0, --), 0830ET

- Jan 16 Jan NY Fed expectations survey, 1100ET

- Jan 16 U.S. to Sell USD45 Bln 4-Week Bills, 1130ET

- Jan 16 U.S. to Sell USD48 Bln 3-Month Bills, 1130ET

- Jan 16 U.S. to Sell USD42 Bln 6-Month Bills, 1130ET

- Jan 17 12-Jan MBA Mortgage Applications (8.3%, --) 0700ET

- Jan 17 Jan NY Fed Business Leaders Index (16.7, --) 0830ET

- Jan 17 13-Jan Redbook retail sales m/m (0.1%, --) 0855ET

- Jan 17 Dec industrial production (0.2%, --) 0915ET

- Jan 17 Dec capacity utilization (77.1%, --) 0915ET

- Jan 17 US Senate Bank Comm vote Powell's Fed chair nom'n, 1000ET

- Jan 17 US Senate Bank Comm vote Quarles' Fed Brd Gov/14Y term, 1000ET

- Jan 17 Jan NAHB home builder index (74, --) 1000ET

- Jan 17 Fed Beige Book 1400ET

- Jan 17 Chi Fed pres Evans participation "American Council of Life Insurers

Exec Roundtable", Florida, audience/media Q&A, 1500ET

- Jan 17 Dallas Fed pres Kaplan participation, "American Council of Life

Insurers Exec Roundtable", Florida, audience/media Q&A, 1515ET

- Jan 17 Nov net TICS flows 1600ET

- Jan 17 Nov long term TICS flows 1600ET

- Jan 17 Cleveland Fed pres Mester on MonPol communication at "Tangri Lecture at

Rutgers University" New Jersey, audience/media Q&A, 1630ET

- Jan 18 13-Jan jobless claims (261k, --) 0830ET

- Jan 18 Dec housing starts (1.297m, --) 0830ET

- Jan 18 Dec building permits (1.303m, --) 0830ET

- Jan 18 Jan Philadelphia Fed Mfg Index (27.9, --) 0830ET

- Jan 18 14-Jan Bloomberg comfort index 0945ET

- Jan 18 12-Jan natural gas stocks w/w (-359Bcf, --) 1030ET

- Jan 18 Tsy annc next weeks 2Y FRN, 2- 5- and 7Y note auction size, 1100ET

- Jan 18 12-Jan crude oil stocks ex. SPR w/w (-4.95m bbl, --) 1100ET

- Jan 18 $13B 10Y TIPS new issue auction 1300ET

- Jan 18 17-Jan Fed weekly securities holdings 1630ET

- Jan 19 Jan Michigan sentiment index (p) (95.9, --) 1000ET

- Jan 19 Q1 St. Louis Fed Real GDP Nowcast 1100ET

- Jan 19 Q1 NY Fed GDP Nowcast 1115ET

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

[TOPICS: MTABLE,M$U$$$,M$$FI$,MN$FI$,MN$FX$]