The Macro Outlook for w/c 9 August 2021
The focus for the week ahead will be on US CPI, PPI, and JOLTS data. It will be a quiet week on the central bank front.
US data last week provided a reasonably strong view of the economy. Non-farm payrolls growth exceeded expectations for Jul and the prior two months were revised notably higher. The unemployment rate declined against a backdrop of increased participation – which is positive. The employment to population ratio also increased. The ISM manufacturing PMI indicated a steady pace of growth at the current higher-level while the services PMI reached another all-time high. Supply chain disruptions rather than demand appear to be the main impediment to output growth. Consumer credit growth for Jun (credit card revolving) exceeded expectations (+$35bn versus +$17bn expected) and suggests some improved confidence to increase leverage (but could equally indicate a more bearish situation).
Covid-19 infections continue to increase across several countries. In some cases, this is against a backdrop of rising vaccinations (that help to negate a need for shutdowns). Lockdowns have been extended across several of the largest Australian states and vaccination rates remain low. Last week, the RBA did not reverse QE tapering scheduled for Sep and was unexpectedly upbeat given the circumstances. The RBA noted a supportive fiscal response to the current lockdowns and expressed confidence that the state economies seem to bounce back after a shutdown.
This week, annual US CPI growth for Jul is expected to ease to +5.3% versus +5.4% in Jun. Core CPI growth is also expected to ease to 4.3% (from +4.5% in Jun). JOLTS data for Jun is expected to report a sustained elevated level of job openings of 9.2m jobs in Jun (versus 9.2m in May). Finally, the prelim read of the University of Michigan consumer sentiment for Aug is expected to show little change in sentiment levels between late Jul and Aug.
This week, the US Treasury will settle $264bn in ST Bills, with a net paydown of -$33bn (issuance < maturing securities). Approx. $22bn in ST Bills will mature on the Fed balance sheet and will be rolled over. The US Treasury will also auction $126bn in Notes and Bonds this week – that will settle next week.
Last week, the US Treasury released the Q3 quarterly refunding requirements. One point of interest was that the US Treasury noted that the current issuance size and patterns may “provide more borrowing capacity than is needed” with an “expectation of announcing an initial set of auction size reductions as soon as the November refunding announcement” (https://home.treasury.gov/news/press-releases/jy0307).
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
MCP Market Update: August 8th, 2021 – Edging higher
The Macro Outlook for w/c 2 August 2021
The focus for the week ahead will be on US non-farm payrolls for Jul, the US ISM and global Markit PMIs, and the RBA and BoE rates meeting.
Increased infections of the delta variant have started to take hold again in several regions/countries.
Data has so far confirmed a sharp contraction in activity in Aus due to severe, and now extended lockdowns that have been reinstated. The RBA will meet this week, and previously announced QE tapering may be reversed. The extended nature of these lockdowns means that a second recession is possible, and some fiscal support has been reinstated. RBA Governor Philip Lowe will provide testimony to the House of Representatives later this week and the RBA will also release the Statement on Monetary Policy (SOMP).
Last week, the FOMC left monetary policy unchanged. Fed Chair Powell noted that the pandemic impacts on the economy have eased, supported by vaccinations. Of note though was that the rate of vaccinations has eased, and the delta strain has been spreading. So far, those sectors most impacted by the pandemic have yet to recover. The committee will continue to assess progress towards the average 2% inflation and full employment goals.
This week, US non-farm payrolls will be important. Growth in nonfarm payrolls is expected to be 900k in Jul (versus +850k in Jun). In recent weeks, the initial claims data has been weaker.
US ISM reports on manufacturing and services will be released for Jul. So far, demand has remained intact, despite lengthening lead times, rising backlogs, falling inventories, supply chain issues, and rising input prices. The ISM manufacturing PMI is expected to be 60.8 (Jun 60.6). The ISM services PMI is expected to be 60.4 (Jun 60.1).
This week, the US Treasury will settle $465bn in ST Bills, Notes, and Bonds raising approx. $60bn in new money. Approx. $21bn in ST Bills will mature on the Fed balance sheet and will be rolled over.
There will be an update this week (4 Aug) on the estimated borrowing requirements for the US Treasury in Q3 and Q4. This will include funding assumptions regarding the expiration of the suspension of the debt ceiling.
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
MCP Market Update: August 2nd, 2021 – SPX Topping?
