Key themes for the week ahead – central bank policy decisions part 2, US payrolls, and global growth momentum.
This is the second of two weeks of major central bank policy decisions. The context of these meetings is significant as markets continue to bring forward rate hikes amid higher (and more persistent-than-expected) inflation and flattening yield curves.
The RBA did not defend the 3yr (Apr ’24 3yr AGB) target of 0.1% last week and by Friday that rate had reached 0.775%. CPI growth was lower-than-expected but the core (trimmed mean) increased into the 2-3% target band. RBA guidance has been more dovish than what market pricing now suggests (RBA see’s wages growth condition not met before 2024). The Board needs to navigate that difference this week – any shift in guidance will be important. At this stage, there is no press conference scheduled (a press conference is usually scheduled if a policy change is announced).
The FOMC is expected to announce the start of QE taper. Market projections of rate hikes have been bought forward and the yield curve has flattened. Details of the taper process will be important. Growth for Q3 came in lower-than-expected last week as did the headline PCE inflation rate – but PCE is still elevated. The ECI indicated faster growth in compensation costs at Q3. Annual wages and salaries growth remained below annual PCE inflation. The Oct regional surveys show supply issues are still acute, price pressures widespread, and employment mostly robust. The non-farm payrolls for Oct will be released on Friday and are expected to increase by 413k jobs (up from 194k in Sep). The ISM surveys for Oct will provide important insight into momentum going into Q4.
The BoE also meets this week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that this meeting could be “live” for a rate hike discussion – but it would be “finely balanced”.
Last week the BoC ended its QE program and noted that inflation may not be as transitory as previously thought. Guidance – policy rates to remain low until 2% inflation target sustainably achieved and slack in the economy absorbed – which it now projects will happen in the middle quarters of 2022.
The ECB announced a slowing of bond purchases over the next few months. Guidance was maintained – the ECB noted that the current conditions did not suggest rates would increase by mid-2022. But there was little pushback on whether markets were “getting ahead of themselves” by pricing in an earlier start to hikes. Inflation was expected to “last longer than originally expected”. The Oct flash CPI growth accelerated further on the back of accelerating energy prices. Underlying inflation also accelerated and is now at the 2% threshold.
The BoJ remained dovish and downgraded growth and inflation forecasts for 2021.
OPEC+ is expected to meet this week.
The US Treasury will settle approx. $496bn in ST Bills, Notes, Bonds, and FRN’s, raising approx. $135bn in new money. The US Treasury will also release the Q4 TBAC refunding documents on 3 Nov.
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
