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.
