The focus for the week ahead will be on US Fed and central bank speeches, and inflation data.
This week, the ECB will host the Forum on Central Banking on 28-29 Sep. US Fed Chair Powell will take part along with other major central bank leaders. There is potential for headline risk as central banks start talking about tapering.
US Fed Chair Powell will also supply testimony to the US Senate this week on the CARES Act. There will be numerous other Fed Presidents and FOMC members speaking this week (not all listed in the calendar).
Last week, there was no change to the stance of US Fed monetary policy. Fed Chair Powell announced that the FOMC is preparing to start tapering QE purchases. The tapering process is expected to conclude around the middle of 2022 – as long as the recovery remains on track. The taper may be announced in Nov – the next non-payrolls will be important (always is), as will signaling in Fed speeches after that time.
The FOMC revised growth projections lower to 5.9% for 2021 (compared to the Jun forecast) but upgraded the forecast for 2022. The unemployment rate forecast was revised higher to 4.8% for 2021 and the 2022 forecast was unchanged at 3.8%. The 2021 forecast for inflation was revised higher to 4.2% for 2021 (from the 3.4% forecast in Jun). Importantly, the medium-term inflation is forecast to remain above the Fed target level. The FOMC projections for the next rate change are now split 50/50. Nine (9) FOMC members expect no change to rates in 2022 and the other nine (9) expect at least one rate increase by the end of 2022.
Other central banks have either indicated an intention to start to ease QE purchases (BoE last week) and ECB previously (currently “recalibrating” purchases) or have already started to taper QE purchases. The only central bank that has not done so is the BoJ – still citing caution over the pandemic.
This week, the prelim Eurozone CPI for Sep will be released. The headline expectation is for CPI growth of +3.3% (prior 3%).
US PCE inflation data will also be released this week for Aug. Core PCE price growth is expected to remain around 3.5% (from 3.6% in Jul). Headline PCE inflation increased from 4% in Jun to 4.2% in Jul.
This week, the US Treasury will settle approx. $370bn in ST Bills, Notes, TIPS, and Bonds raising approx. $11.4bn in new money. The new money raised this week is relatively low given the size of issuance due to reduced auction amounts on some ST Bills and the removal of a CMB. Approx. $47bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be rolled over. The 4-week Bill rate remains somewhat elevated in the lead-up to debt ceiling negotiations. The 8-week Bill rate has moderated.
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
