This week, the focus will be on the US non-farm payrolls report for Jun – just before the US Independence Day long weekend.
It will be a somewhat quieter week on the central bank front. There will be speeches by Governor Lowe of the RBA ahead of the RBA meeting next week, ECB President Lagarde, and BoE Governor Bailey. There will also be several speeches by FOMC members this week. Last week, FOMC speeches highlighted two broad views on the inflation outlook – 1) that the current growth in consumer prices would likely “fade” and 2) the risk that inflation could be more persistent. Testimony by Fed Reserve Chair Powell last week noted that price increases “don’t speak broadly to a tight economy”. But he did state that current price effects had been larger than expected and may turn out to be more persistent.
Annual growth in the US PCE price index (Fed preferred measure of consumer price inflation) increased by +3.9% in May after increasing by +3.6% in Apr. The base effects also eased this month (meaning that there was a slight increase in the index from Apr to May in 2020).
The top three contributors to headline inflation this month were: Gasoline prices (accounting for approx. 24% of the headline inflation growth), Used Light Truck prices (accounting for approx. 9% of headline inflation growth), and the imputed price for owner equivalent rent (accounting for 6% of annual headline inflation growth in May). Overall, the annual growth in the price of goods accelerated from +4.7% in Apr to +5.4% in May. This contributed nearly 47% of headline inflation growth (up from 43% in the year to Apr 2021). The annual growth in the price of services was unchanged at +3.1% (no acceleration in the annual rate between Apr and May).
Annual growth in Core PCE inflation accelerated slightly from +3.1% in Apr to +3.3% in May.
The key event this week in the US will be non-farm payrolls on Friday. Expectations for payrolls growth in Jun are currently at +675k (+559k in May).
Other key reports are the ISM manufacturing PMI for Jun, factory orders, goods trade balance, total vehicle sales, and initial jobless claims (which have been slightly higher in recent weeks).
This week, the US Treasury will settle $489bn in ST Bills, Notes, Bonds, and TIPS raising approx. $124bn in new money for the week. This week, approx. $55bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
Fed purchases of US Treasuries (QE) will be notably lighter this week leading up to the long weekend ($7.9bn versus $20bn last week). MBS purchases will be unchanged at $22bn. Purchases will recommence on 6 Jul.
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
