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 The annual WEF gathering at Davos was due to take place this week and has been replaced by a series of virtual sessions between 17-22 Jan.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.
