by Kim | Jan 31, 2022
Key themes for the week ahead – central bank meetings and US non-farm payrolls
This will be another big week of economic data and central bank meetings.
Recap
Last week, the FOMC announced the end of QE in Mar (end of tapering) and signaled that it would be appropriate to start rising the FFR target soon. Over the weekend, the Atlanta Fed President noted that a more aggressive approach to increases was possible “if warranted by the economic data”. A separate note was released after the meeting outlining the broad principles of QT. The PCE price index growth for Dec came in below forecast at 5.8%, but still ahead of the Nov rate of 5.7% while monthly growth remained elevated at 0.45%. Annual core PCE price growth accelerated to 4.85%. GDP growth accelerated more than expected in Q4 led by a notable contribution from a larger change in inventories.
The BoC kept rates unchanged, but “decided to end its extraordinary commitment to hold its policy rate at the effective lower bound”. The bank is signaling that rates will be “on a rising path”.
Central Bank Meetings
The RBA is expected to keep rates on hold and will possibly announce the end of QE/tapering. CPI growth was higher than expected, but core CPI remains within the 2-3% band. Current strong labour market conditions are expected to ease given the latest outbreak. The RBA may signal rate increases to start this year, rather than in 2023, but it is likely the RBA would prefer to see wage growth increase first.
The BoE is expected to hike rates again and may announce its program to start reducing its balance sheet. We haven’t seen a situation when multiple CBs are reducing balance sheets at the same time.
The ECB is expected to keep rates on hold with no change in current settings. CPI growth remains more moderate excluding energy. Last week, Q4 GDP was slower across major economies and the German economy contracted by more than forecast in Q4.
US Non-Farm Payrolls
This week US non-farm payrolls are expected to increase by a more moderate +155k jobs (versus +199k in Dec). There has been some easing of momentum in Jan, especially in services and some regional manufacturing surveys (the latest outbreak is impacting staffing and output). Wage pressures eased more than expected in Q4 with the employment cost index increasing by 1% (versus 1.3% in Q3). This month, the participation rate is expected to fall slightly from 61.9% to 61.8% but the unemployment rate is expected to remain at 3.9%. The more detailed ISM surveys for US manufacturing and services activity will also be released for Jan this week. Both surveys are expected to show slightly slower growth momentum for the month.
This week, the US Treasury will auction and settle approx. $465bn in ST Bills, Notes, Bonds, TIPS, and FRNs, raising approx. $121bn in new money. Approx. $55bn in ST Bills, Notes, FRNs, and Bonds will mature on the Fed balance sheet this week and will be rolled over. The US Treasury will also release the latest financing schedule on 2 Feb.
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 | Jan 31, 2022
Equities broke lower early last week to tag our measured targets and test our bigger picture support zone. Our base case for the SPX / ES remains unchanged - that is, this latest decline is expected to be a wave 4 correction prior to a final wave 5 of (5) to new ATH's. While our […]
by Kim | Jan 24, 2022
Key themes for the week ahead – FOMC, inflation, and growth momentum amid the latest outbreak
This will be a big week of economic data and central bank meetings.
Central banks
The focus will be on the FOMC monetary policy meeting. The FOMC is expected to confirm the end of QE (end of tapering) in Mar. At the Dec meeting, Chair Powell noted that the earlier conclusion of QE/tapering was intended to provide the FOMC with the flexibility to adjust policy, especially given more persistent inflation. We expect some signalling on the timing for a rates lift-off – possibly Mar. Speeches by various Fed officials have supported a Mar timing for the first hike and the end of QE in Mar opens the way for the Fed to commence hiking. The FOMC is also expected to provide further details of QT (pace and timing).
The BoC meets this week. At the last meeting, policy guidance suggested mid-2022 for rates lift-off. Canada CPI data for Dec came in softer for the month with MoM CPI recording a slight fall of -0.1% led by lower gasoline prices. Annual CPI growth accelerated to +4.8%.
Next week the RBA, BoE, and ECB will meet on monetary policy.
Inflation
Inflation data will remain in focus this week. The US PCE price index growth is expected to accelerate to +6.1% in Dec from +5.7% in Nov. The US employment cost index will be an important barometer of wage pressure. The index is expected to increase at a slightly slower pace of 1.2% in Q4 (from +1.3% in Q3).
Both Aus and NZ Q4 CPI data will be released this week. Aus CPI is expected to have accelerated in Q4 to 3.2% (from +3% in Q3). The QoQ CPI growth is also expected to accelerate to 1% in Q4 from +0.8% in Q3. Faster inflation will place greater pressure on the RBA to review its rate hike timing (currently 2023) – especially after the strong Dec labour force report and a potentially earlier FOMC hike. The latest omicron impact (PMI services back into contraction in Jan) is likely to be viewed as a short-term disruption.
Growth
Growth momentum is likely to have slowed amid the omicron outbreak. The prelim Jan PMIs for the major economies will highlight the extent of the impact of the omicron outbreak, especially on services. So far, Aus & Japan services PMIs recorded a sharp contraction in Jan.
US GDP in Q4 is expected to increase by 5.5% (SAAR basis) after slower growth in Q3 of +2.3%. There has been some softening of US data toward the end of Q4 – especially in terms of personal expenditure. PCE spending is expected to decline by -0.6% in Dec (in line with the weaker Dec retail sales).
Weaker economic conditions are expected to be reflected in Europe for Q4; GDP in Germany is expected to contract by -0.2% in Q4.
This week, the US Treasury will auction and settle approx. $275bn in ST Bills, raising approx. $31bn in new money. The US Treasury will also auction 2yr, 5yr, and 7yr Bonds and the 2yr FRN this week – which will settle on 31 Jan. Approx. $26bn 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 | Jan 24, 2022
Equity markets broke lower across the board last week as warned. Importantly, the primary equity indices tagged initial downside targets for a "corrective" decline. However, if our primary count of an expanded flat (3-3-5) is correct, this latest decline should extend lower into 5 waves for red wave (c). While we are open to more […]
by Kim | Jan 17, 2022
Key themes for the week ahead – global inflation, central banks, US housing data
This will be a short week in the US with the National holiday for the birthday of Martin Luther King Jr on Monday. The annual WEF gathering at Davos was due to take place this week and has been replaced by a series of virtual sessions between 17-22 Jan.
Recap
Last week, US CPI increased at an expected pace of 7.1% in Dec – the fastest pace of consumer price inflation since the early ’80s. Inflation remained high for essentials such as food, shelter, and energy. Consumer sentiment for Jan was disappointing, falling to a new low since the GFC, on inflation and expected falls in real income. US retail sales missed badly for Dec – and the result was worse accounting for inflation. Sales fell across most categories due to pulling forward of holiday sales (Oct), lack of inventory, and/or some effect from the latest round of the pandemic.
Markets now reflect a higher probability that rate hikes will start in Mar. Fed speeches also signaled a more aggressive approach to QT – such as the possibility of outright sales of Fed holdings (rather than a roll-off). The US yield curve still finished the week at the equal flattest level for the YTD (both 2’s-10’s and 5’s-30’s).
Central Banks
This week, the BoJ meets on policy. With inflation at relatively low levels, no change to policy is expected. However, there is a possibility of a change in wording around inflation risks. A small (by global standards) lift in CPI has reportedly triggered “hints of public discontent” (Bloomberg). The ECB Dec minutes will be released this week and ECB President Lagarde will speak at a virtual Davos session on Friday. The US FOMC meets next week with the speech blackout taking effect this week.
Global Inflation
CPI for Dec will be reported this week across major economies. Headline expectations: UK (expecting +5%), Canada (expecting +4.7%), Eurozone (expecting 5%), and Japan (prior +0.6%).
US Housing
US mortgage application data highlights the rising mortgage rate environment affecting refinance activity. Data this week: existing home sales for Dec are expected to fall slightly to 6.43m (SAAR). Housing inventory will be a key highlight of the report. Also, building permits; expecting 1.7m, and housing starts; expecting 1.65m (both SAAR-basis).
Other
The Aus labour market survey for Dec will be released. Employment is expected to increase by +30k, participation is expected to increase to 66.2%, and the unemployment rate is expected to fall to 4.5%. The Nov data last week was strong for retail sales and housing finance. This all reflects the positive impact of reopening. This week, the Westpac consumer sentiment for Jan will highlight any impact on sentiment from this latest outbreak.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds, raising approx. $96bn in new money. The US Treasury will also auction 10yr TIPS and the 20yr Bond this week – which will settle on 31 Jan.
Approx. $29bn 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.
