January 6, 2022 Headlines

It’s been a tough start to the new year for bonds. Most 2022 outlooks from the largest broker dealers and asset managers called for another tough year for fixed income as the Fed removes accommodation, even if tapering and rate hikes had mostly been priced in already. As we discuss in our January Monthly Market Commentary, the real wild card related to Fed policy in 2022 is balance sheet normalization. Some of the more hawkish members of the FOMC have suggested that the Fed may need to let the balance sheet shrink this year as another response to inflation risks. During the last quantitative easing cycle, the Fed waited three years after ending tapering before letting its securities portfolio roll off, so doing it inside of 12 months this time around would expectedly have a material impact on financial asset valuations. 
To that end, the minutes of the December 15 FOMC meeting were released yesterday, and it further fueled the sell-off in bonds. To be clear, there were no true revelations provided, but this is a skittish market at the moment. The minutes suggested that the March meeting is live for a rate hike if needed, which we already knew from the December meeting itself, but the big area of interest was the reference to balance sheet reduction. “Some” suggested that a “significant amount of balance sheet shrinkage could be appropriate over the normalization process.” This shouldn’t be surprising given the above reference to hawkish Fed leaders (Bullard, Waller, etc.) making similar comments of late, but the obvious risk is that “some” becomes “many.”  As such, public speeches by Fed leaders over the next couple of months will be even more closely scrutinized for hint of how various FOMC participants (particularly voting members) are leaning on the topic. 

​​​​​​​Jason Haley
Chief Investment Officer

01/03/22Markit US Manufacturing PMI57.757.757.8
01/03/22Construction Spending MoM0.60%0.40%0.20%0.40%
01/04/22ISM Manufacturing6058.761.1
01/04/22ISM Prices Paid79.368.282.4
01/04/22ISM New Orders60.460.461.5
01/04/22ISM Employment53.654.253.3
01/04/22JOLTS Job Openings11079k10562k11033k11091k
01/04/22Wards Total Vehicle Sales13.10m12.44m12.86m
01/05/22MBA Mortgage Applications-5.60%3.20%
01/05/22ADP Employment Change410k807k534k505k
01/05/22Markit US Services PMI57.557.657.5
01/05/22Markit US Composite PMI5756.9
01/05/22FOMC Meeting Minutes
01/06/22Challenger Job Cuts YoY-75.30%-77.00%
01/06/22Trade Balance-$81.0b-$80.2b-$67.1b-$67.2b
01/06/22Initial Jobless Claims195k207k198k200k
01/06/22Continuing Claims1678k1754k1716k1718k
01/06/22ISM Services Index6769.1
01/06/22Factory Orders1.50%1.00%
01/06/22Factory Orders Ex Trans1.10%1.60%
01/06/22Durable Goods Orders2.50%2.50%
01/06/22Durables Ex Transportation0.80%
01/06/22Cap Goods Orders Nondef Ex Air-0.10%
01/06/22Cap Goods Ship Nondef Ex Air0.30%
01/07/22Two-Month Payroll Net Revision
01/07/22Revisions: Employment Report — Household Survey
01/07/22Change in Nonfarm Payrolls433k210k
01/07/22Change in Private Payrolls400k235k
01/07/22Change in Manufact. Payrolls35k31k
01/07/22Unemployment Rate4.10%4.20%
01/07/22Average Hourly Earnings MoM0.40%0.30%
01/07/22Average Hourly Earnings YoY4.20%4.80%
01/07/22Average Weekly Hours All Employees34.834.8
01/07/22Labor Force Participation Rate61.90%61.80%
01/07/22Underemployment Rate7.80%
01/07/22Consumer Credit$20.000b$16.897b


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