by Kim | Oct 25, 2021
Key themes for the week ahead – central bank policy decisions, inflation, and US growth (tech earnings too).
This will be the first of two weeks of major central bank policy decisions. This week: the BoC, BoJ, and ECB. Next week: the RBA, FOMC, and BoE. Policy decisions and signaling will be interesting in the context of recent front-end sell-offs. Market pricing of rate hikes have been brought forward across many countries – even despite some dovish CB guidance.
This week, the BoC is expected to keep rates on hold, but with a chance for a further taper announcement.
The ECB is expected to keep policy settings on hold. Guidance on taper will be important. The Sep CPI was confirmed at +3.4% – led by accelerating energy prices. Underlying inflation is 1.9% ex-energy but accelerating. The Eurozone flash PMI for Oct suggests the Euro growth momentum slowing into Q4. The Euro area Oct prelim CPI is out this week, expecting +3.7% headline growth (up from 3.4% in Sep). Q3 GDP is expected to slow to +3.5%.
The BoJ is expected to keep policy settings unchanged. Last week CPI growth remained well below the BoJ targets. The latest flash PMI’s for Oct indicated a welcomed shift in growth momentum at the start of Q4.
Next week the RBA meets. Rate hikes are being priced in much earlier than RBA guidance. Last week the RBA responded by buying up to $1bn of 2024 3yr AGB to defend the 0.1% target rate. Minutes reaffirmed dovish guidance especially as the country emerges from multiple lockdowns. The Q3 CPI is released this week – expecting inflation to ‘ease’ to 3.1% (from 3.8% – base effects).
The BoE also meets next week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that next week could be “live” for a rate hike discussion – but it would be “finely balanced”.
US rates have also been pricing an earlier liftoff with a flattening yield curve. The lift in ST rates has been in line with a shift in Fed guidance, but concern is rates rising going into a lower growth environment (roll-off of stimulus etc). The PCE inflation is out this week for Sep – expecting core inflation to increase to 3.7% from 3.4%. The ECI for Q3 will provide some insight into wages. US growth has been downgraded throughout Q3 and GDP for Q3 is expected to slow to +2.8% annualized. Looking forward, the flash PMI’s for Oct (released last week), reported a notable lift in services output and activity. Manufacturing output continues to be hampered by ongoing supply chain disruptions while demand has remained robust. Widespread input price increases were again reported by firms.
The US Treasury will settle approx. $286bn in ST Bills and 5yr TIP’s raising approx. $103bn in new money. Additional Cash Management Bills (CMB’s) were added to the schedule as the US Treasury manages the TGA balance amid debt ceiling discussions. Just over $200bn in Notes (2yr, 5yr, and 7yr) and 2yr FRN will be auctioned this week – and will settle next week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Oct 25, 2021
Last week the equity markets cleared our near term inflection point and rallied directly to test ATH's. While we continue to look for new wave 5 highs for this cycle, we are still not convinced that this immediate rally is sustainable. No index has clearly broken out with the Nasdaq clearly lagging. The DXY remains […]
by Kim | Oct 18, 2021
Key themes for the week ahead – growth momentum & output, inflation, and US housing data.
A quieter week on the data front, but a lot of Fed speak this week.
There will be US Fed speeches on most days this week. Chair Powell was expected to speak later in the week – but this is not yet on the Fed calendar. The next FOMC meeting is two weeks away (2-3 Nov), so this will be the last week for signaling ahead of that meeting. There was much to digest from last week with CPI, FOMC minutes, and the flattening yield curve.
The FOMC minutes last week showed that an announcement on taper may be made at the Nov meeting. In a speech last week, Vice Chair Clarida indicated that inflation targets had been more than met and that labour market conditions for a taper had been “all but” met. A more cryptic reference to “very nearly”, or “almost”. Higher, and so far, more persistent inflation has been the theme markets have been digesting. Market estimates of hikes were brought forward, and the yield curve flattened as 1yr-7yr yields reached YTD highs by the end of the week.
In his speech last week, Vice Chair Clarida also noted ‘significant shifts in aggregate demand and supply’ (due to policies to manage the pandemic). He was referencing the impact of supply chain bottlenecks on output and prices that are persisting. This week, we’ll get a further reading of the impact of ongoing bottlenecks on growth momentum and output leading into Q4.
Firstly, US industrial production and Chinese industrial production data will round out the view of industrial output for Sep. Then, later in the week, the prelim Oct PMIs for a range of countries will be released.
Other inflation data out this week will round out the Sep data and includes the final Euro area CPI for Sep, NZ CPI (upside surprise earlier today), and Japan National CPI for Sep. The prior YoY CPI growth for Japan was -0.4%.
US housing data for Sep will be out this week – including existing home sales (exp 6.06m SAAR), building permits (exp 1.68m SAAR), and housing starts (1.62m SAAR).
The RBA minutes for Oct will be released and RBA Governor Lowe speaks this week.
This week, the US Treasury will settle approx. $298bn in ST Bills raising approx. $110bn in new money. This is a relatively heavy week for ST Bills. A number of additional Cash Management Bills (CMB’s) were added to the schedule last week and again this week to help manage Treasury spending leading up to debt ceiling and funding negotiations.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over. The 5yr TIPS and 20yr Bond will be auctioned this week – and will settle around month end.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Oct 18, 2021
Last week saw a strong recovery from equities after a corrective 3 waves down from the ATH's as posted and tweeted. We are now at a near term inflection point for the broader market structure. Our base case remains that this decline is all or part of a corrective 4th wave with new ATH's required […]
by Kim | Oct 11, 2021
Key themes for the week ahead – US inflation, Fed taper signalling, and rates.
Despite the headline disappointment, US payrolls growth was interpreted as good enough to keep a possible taper announcement on track for Nov (FOMC 3 Nov 2021). This week, we’ll watch the Sept FOMC Minutes and Fed speeches for important signalling on the payrolls result, inflation, and a taper announcement. US inflation for Sep will also be important this week. US and global rates are likely to remain in focus.
The headline US non-farm payrolls last week disappointed to the downside. “Reasonably good” growth in private payrolls (+317k) was offset by a decline in public payrolls (-123k). The decline in education payrolls (state and local levels) accounted for all the public sectors decrease with lingering Covid issues disrupting back to school activity. In the private sector, the growth in Leisure and Hospitality payrolls was muted compared to prior months and this trend is consistent with the outbreak in late 2020.
The prior two months’ payrolls were revised higher and the monthly average payrolls growth over the last four months now sits at +653k/month.
US labour supply is still an issue with participation declining in Sep. This partly explains the much larger decrease in the unemployment rate in Sep. In the broader 16yrs+ group, the combination of growth in employment and a decrease in participation resulted in a notable decrease in the unemployment rate from 5.2% in Aug to 4.8% in Sep. In the core working-age group of 24-54yrs, most of the decline in the unemployment rate was due to the fall in participation.
The US CPI data for Sep will be a key focus this week. Headline CPI growth is expected to remain at +5.3% and core CPI growth is expected to remain at +4%.
US retail sales for Sep will be released and a slight decline of -0.2% is expected, but ex-Autos, growth of +0.4% (MoM) is expected. The University of Michigan consumer sentiment data (prelim) for Oct will also be released – a slight improvement is expected.
In Aus, the labour market data for Sep will be released. Employment is expected to decline by -120k (prior -146k). Vaccination rates are at least on-target for a staged easing of restrictions (so far NSW, with Vic to start at the end of Oct).
Chinese data (trade, inflation, and retail sales) for Sep will also be released.
This week, the US Treasury will settle approx. $309bn in ST Bills, Notes, and Bonds raising approx. $84bn in new money. The US Treasury will auction and settle the 3yr and 10yr Notes (before CPI) and the 30yr Bond this week. There has been a shift in timing for debt ceiling negotiations and this is reflected in the (higher) 8-week Bill. Approx. $26bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be rolled over.
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
