The focus this week is likely to remain on the FOMC meeting last week – and the (interpreted) shift in signaling from that meeting. Be aware that many FOMC members will be speaking this week, including Chair Powell providing testimony on the Covid response to the US House of Representatives. We will look for any shift in remarks by Fed officials, including comments ‘walking back’ this interpretation of a change in Fed sentiment.
A change in the dot-plot projections for interest rates signaled, without any commitment, that a change in rates may happen sooner. This also means that tapering QE purchases would also likely start sooner. Again, no explicit comment was made by the FOMC on this. Markets are still digesting the implications of this shift, along with some of the ‘technical adjustments’ to administered rates (interest on reserves and excess reserves, and the overnight RRP rate).
Other key events coming up this week include:
US PCE price inflation data on Fri – annual core PCE prices are expected to increase to +3.4% (from +3.1% in Apr). Headline PCE inflation will not have a lower base effect this month. Some forecasts still expect an acceleration in annual headline PCE growth for May to 4% (from +3.6% in Apr).
Also for the US: existing home sales for May (expecting 5.72m SAAR versus 5.85m in Apr), consumer sentiment for Jun, durable goods orders, and several of the regional manufacturing surveys for Jun.
The Bank of England rates decision will be on Thurs.
Finally, the prelim PMI’s for Jun will be released for the US, Europe, Japan, UK, and Australian economies.
This week, the US Treasury will settle $292bn in ST Bills and 2yr FRN’s raising approx. $34bn in new money for the week. The net new cash raised for the quarter to date is approx. $211bn (full quarter 2 est of $463bn).
At the latest meeting, the FOMC also made a “technical adjustment” to the interest rate on required and excess reserves (now 15bps up from 10bps) and the overnight repurchase rate (5bps up from zero). Auctions of short-term bill rates appear to have been impacted after the meeting (CMB’s and 4/8-week Bills). Usage of the Fed’s ONRRP program has been increasing recently but increased notably after this adjustment. This week, the US Treasury will also auction the 2yr, 5yr, and 7yr Notes – which will settle on 30 Jun. Approx. $9bn in ST Bills will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
