by Kim | Dec 20, 2021
Key themes for the week ahead – US inflation, elevated virus uncertainty
This will be a quiet data week leading into the Holiday period. The key data highlight will be the monthly US PCE inflation data for Nov.
Uncertainty is elevated about the new virus variant. Cases have reached new pandemic highs in some places while restrictions have been reinstated in some countries (i.e., Europe).
This uncertainty comes amid a shift to a tightening bias among central banks. The BoE surprised last week with a 15bp increase in the bank rate to help address higher and more persistent inflation. The ECB remained more dovish but still announced the end of the emergency QE program for Mar 2022 (to be offset though by the regular APP until Q4 2022). The FOMC delivered as expected with a faster pace of taper, and likely ending QE in Mar 2022. This acceleration gives the FOMC flexibility to “better position policy”. The SEP showed a shift to three potential hikes in 2022. Quantitative tightening (QT) was then floated by Fed Governor Waller on Friday, who also suggested that the Mar 2022 meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
For the US, the trend of the data over the intervening meeting period will be crucial to the timing of the first hike.
The prelim PMIs for Dec (released last week) showed a slowdown in growth momentum across manufacturing and services activity across the US, Eurozone, UK, Japan, and Australia. Most notable was the slowdown in services activity, especially in the UK and Europe.
US PCE Inflation
The US PCE price index data for Nov will be released this week. Headline PCE price growth is expected to increase to +5.6%, up from 5% in Oct. Income growth is expected to slow for the month to 0.2% (from +0.5% in Oct), and expenditure growth is expected to slow slightly to 1% (from 1.3% in Oct).
Other US data includes the final Dec release of the University of Michigan consumer sentiment data (expecting no change to the 70.4 headline index).
This week, the US Treasury will auction and settle approx. $321bn in ST Bills, raising approx. $127bn in new money for the week. The US Treasury will also auction 5yr TIPS and the 20yr Bond, both to settle next week. Approx. $8bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net.
by Mars Capital Partners | Dec 20, 2021
Wishing everyone a happy holiday season and all the best for the new year. Given the holidays next weekend, our next MCP Market Update will be posted in the new year :-) Markets whipsawed last week as they failed to break-out to new ATH's despite the bullish Santa rally setup. The US$ remained well bid […]
by Mars Capital Partners | Dec 13, 2021
Key themes for the week ahead – central bank policy decisions, inflation, and output
This will be a big week of data and final central bank meetings for the year. The focus for the week will be the FOMC meeting/decision on 15 Dec.
Central Banks – Part Two
The FOMC will meet and announce details of its policy decision this week. Expectations are for an acceleration of QE tapering. The SEP will be important with updates on inflation, growth, labour market, and the expected shift in timing for rates lift-off.
The ECB, BoE, SNB, and BoJ all meet this week also. There are no changes expected to policy settings.
Last week, the RBA kept policy unchanged but suggested that the Board will consider its QE program in Feb ‘22 – especially as it waits to see what other CB’s do. RBA Governor Lowe will also speak this week – his speeches should provide a gauge on the pushback on earlier rates increases. Markets are still forecasting an earlier rates lift-off than RBA guidance. The BoC kept policy unchanged but changed the wording around inflation (removing temporary reference, and watching for more embedded inflation expectations). With higher inflation and a recovering labour market, expectations are that hikes will commence earlier next year. The PBoC cut the RRR last week to further support the economy.
Inflation
Last week US CPI growth in higher than expected at +6.88% for Nov. Most areas of expenditure contributed to the acceleration in inflation from Oct. Inflation numbers out this week for Canada (exp +4.8%), the UK (exp +4.7%), and the Euro area (final est +4.9%). Euro area CPI (especially) has been tracking higher due mostly to energy prices.
Growth momentum
This week the prelim PMI’s for Dec will be released providing insight into private sector growth momentum into the final month of Q4.
Improvement in industrial production for Germany and Japan in Oct highlighted a rebound in auto output. This week, US industrial production data for Nov will be released – expecting a monthly gain of +0.7% (versus +1.6% in Oct). US retail sales data will also be released with expected monthly growth of +0.8% for Nov compared to +1.7% in Oct. Monthly US CPI for Nov was +0.8%.
This week, the US Treasury will auction and settle approx. $290bn in ST Bills, Notes, and Bonds. There will be a net paydown though of $118bn which includes three recent CMBs maturing on 15 Dec ($120bn). Approx. $32bn in ST Bills and Notes & 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 below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Dec 12, 2021
From last week's update... "Prima facie, the trend still appears bullish with impulsive rallies and corrective declines but two-way risks are significant given where we are in the cycle." - the bears fumbled and the bulls ran. The door is open for a santa rally into year-end if the bulls can sustain a breakout here. […]
by Kim | Dec 6, 2021
Key themes for the week ahead – US CPI and central bank policy decisions
The key data point this week will be US CPI on Friday. This will also be the first of two weeks of final central bank policy meetings for the year. Also note: the lead-up to the debt ceiling limit (estimated 15 Dec), finalizing the passage of the Democrats spending bill in the Senate, and some more firm direction on the risk level of the new covid variant.
Central Bank Decision & US CPI
FOMC – Testimony last week by US Fed Chair Powell outlined an explicit shift in policy approach. Chair Powell indicated that inflation is an issue such that it will now need to be addressed in order for the labour market to continue to recover;
“…to get back to the same labour market we had before the pandemic, we need a longer expansion. To get that, we are going to need price stability, the risk of persistent high inflation is a major risk to getting back to such a labour market…” (from 55min https://www.banking.senate.gov/hearings/cares-act-oversight-of-treasury-and-the-federal-reserve-building-a-resilient-economy)
The tone of questioning in the Senate highlighted the pollical nature of the concern over the current inflation rate. The taper will likely be accelerated, finishing a few months earlier in 2022. Despite risks, the effect of the new variant will not be “remotely comparable” to Mar 2020. The FOMC meets next week on 14/15 Dec.
US data will maintain pressure on the FOMC next week. This week, annual US CPI growth is forecast to accelerate further, expecting +6.7% in Nov up from +6.2% in Oct. The monthly growth in the CPI for Nov is expected to be +0.7% versus +0.9% in Oct. Last week, non-farm payrolls growth disappointed notably for Nov at +210k growth versus +550k expected. The Sep and Oct non-farm payrolls were revised higher by +82k in total.
The RBA meets this week and policy settings are likely to remain unchanged. The RBA was forced to abandon its 3yr target at the last meeting. The RBA Board has continued to push back on more hawkish forecasts for rate increases in 2022 – expect that to continue. As previously announced, QE will be reviewed at the Feb 2022 meeting.
The BoC will also meet this week and policy settings are expected to remain unchanged. At its last meeting, the BoC ended QE and shifted to the reinvestment phase. Looking for signaling from the bank on the path of future rate changes – possibly earlier in 2022.
Next week will be a big week for central bank meetings: FOMC, ECB, BoE, and the BoJ.
This week, the US Treasury will auction and settle approx. $223bn in ST Bills, raising approx. $53bn in new money. The US Treasury will also auction $112bn in 3yr and 10yr Notes and 30yr Bonds – that will settle next week. Approx. $14bn in ST Bills 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 below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
