The Macro Outlook for w/c 8 November 2021
Key themes for the week ahead – inflation & central bank speeches
It’s been a huge two weeks of central bank policy decisions. Central Banks acknowledged that inflation has not been as transitory as they had initially expected – due to persistent demand/supply imbalances affecting supply chains. While inflation is above targets, policy makers signaled that they would effectively ‘look through’ this current inflation impulse and expect that inflation will ease through H1 next year as supply chains recover. The case for rate increases was not made because labour market goals have yet to be met. The exception is the BoE – still with market expectations of an increase in the bank rate by the end of the year.
The US FOMC announced a flexible approach to its taper schedule. It noted that it can be patient on rate hikes for the moment but still emphasized data dependence, flexibility, and a willingness to move either way (including with taper).
We don’t think it’s time yet to raise interest rates. There is still ground to cover to reach maximum employment both in terms of employment and in terms of participation. US Fed Chair Powell
There will be several central bank speeches this week – with Powell, Lagarde, Maklem, and Bailey all speaking. We’ll be looking for any follow-up commentary.
A decision on the US Fed Chair should also be imminent.
US labour market data was stronger than expected for Oct with upward revisions for the prior two months. The US services ISM reported a broader expansion in activity in Oct – reaching a new series high. Manufacturing momentum is still constant at this higher level. Pricing pressures and longer lead-times appeared to reassert this month across several surveys.
This week, the key economic release will be US CPI for Oct. Annual growth in the headline index is expected to accelerate from 5.4% in Sep to 5.8% in Oct. US PPI, JOLTS, and the Uni of Michigan consumer sentiment data will also be released. Veterans Day falls on Thursday this week. US initial claims will be reported on Wednesday.
Chinese CPI and PPI data is also out this week. Chinese CPI is expected to increase from 0.7% in Sep to 1.4% in Oct. The monthly rate is also expected to accelerate from +0.1% in Sep to +0.6% in Oct.
The Aus labour market and employment survey for Oct will start to pick up the reopening of the two largest states. Employment is expected to increase by +50k persons (after falling by -138k in Sep) and participation is expected to increase from 64.5% to 64.8%.
This week, the US Treasury will settle approx. $177bn in ST Bills, with a net paydown of -$6bn. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – all will settle next week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
MCP Market Update: November 8th, 2021 – Santa Squeeze…
The Macro Outlook for w/c 1 November 2021
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
MCP Market Update: November 1st, 2021 – Still Waiting
