The focus for the week ahead will be on the US FOMC meeting, inflation data, and Q2 GDP.
The FOMC will meet this week and no change to policy is anticipated. The expected timing of a tapering announcement has moved out from Aug (Jackson Hole) to possibly Dec. In recent testimony, Fed Chair Powell noted that the economy was still “a ways off” from reaching the threshold for tapering. But the Fed Chair has also promised plenty of warning of any changes. Given the range of views on the FOMC, it’s likely that tapering will be a key point of discussion.
In Australia, widespread lockdowns due to an outbreak of the ‘Delta’ variant of Covid-19 have resulted in a sharp contraction in output (especially services). The RBA will meet next week, and previously announced QE tapering may be reversed temporarily.
US data this week will focus on inflation, manufacturing reports, housing, and GDP. This week, the PCE measure of consumer inflation will be released, and annual core PCE price growth is expected to accelerate to 3.7% (from 3.4% in May). US GDP for Q2 is expected to grow at 8.6% (annualized) – prior Q1 growth was 6.4%. US new home sales are expected to grow by 792k in Jun after 769k growth (SAAR) in May. House prices in May are expected to increase by +15.4% year on year.
US manufacturing data for July highlights continued strong demand but ongoing issues with longer lead times, higher input prices, and tighter labour supply. The prelim US services PMI for July recorded a slowdown in output growth, but that was coming off the series high recorded in Jun. Weaker demand was reported due to “hesitancy” over higher prices.
Other inflation data out this week includes: Aus Q2 CPI expected to grow by 3.8% (Q1 growth 1.1%) and Eurozone CPI (prelim) for Jul is expected to grow by 2% (versus 1.9% annual growth in Jun).
The prelim Eurozone GDP for Q2 is expected to increase by 1.5% after recording -0.3% in Q1.
This week, the US Treasury will settle $246bn in ST Bill auctions, with an estimated pay down of $17bn for the week (issuance < amount maturing). The US Treasury will also auction approx. $235bn in Notes and FRN’s this week which will settle next week.
Approx. $42bn in ST Bills, Notes & Bonds, and FRN’s will mature on the Fed balance sheet and will be rolled over. Markets are currently unfazed by the upcoming expiration of the debt ceiling suspension on 31 Jul. A further suspension of or an increase in the debt ceiling is currently under negotiation in the US Congress.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf or scroll through the file below. Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
