The Macro Outlook for w/c 10 January 2022

by Kim | Jan 10, 2022

Key themes for the week ahead – US CPI, Fed nomination hearings, and US retail sales.

Last week, the Fed minutes signaled another shift from the FOMC to promote further steps in policy normalization. The timing and conditions for quantitative tightening (QT), or balance sheet runoff, was discussed. There was a flavor of ‘this time is different’ concerning QT (the first QT program ended abruptly in Sep 2019) and would likely start much sooner after rates liftoff than in the prior cycle. The accelerated end to taper was seen as warranted with inflation exceeding forward guidance criteria. There were mixed views on full employment, but it was generally agreed that maximum employment criteria were not yet met, but would be soon. The accelerated end to taper now provides the FOMC with the flexibility for an earlier start to rates lift-off. Markets are pricing a higher probability for a Mar hike.

Later in the week, US non-farm payrolls growth for Dec disappointed. But in the five months to Dec, non-farm payrolls have been revised higher by +730k jobs (compared to the initial number announced from Jul to Nov). Labour market indicators continue to improve. Employment growth remained strong and the employment to population ratio is now 1.6%pts below the pre-pandemic peak. The participation rate was unchanged in Dec but had been revised higher for Nov to 61.9%. The unemployment rate fell below 4% to 3.9% (16yrs+).

The ISM surveys were disappointing for Dec. The services ISM eased more notably with slower output and orders growth. Firms noted continued price pressures. Manufacturing momentum also eased somewhat – especially the pace of price growth and supplier delivery times.

Fed Nomination Hearings

This week the focus will be on the important FOMC nomination hearings in the US senate for Chair Powell (Tue) and Governor Brainard (Thur). The last time Chair Powell testified, senators conveyed their concern about high inflation.

US CPI

The US CPI for Dec will be released this week. CPI is expected to increase by 7% in Dec (up from 6.8% in Nov). The monthly increase is expected to ease to +0.4% (from +0.8% in Nov). Core CPI is expected to increase by 5.4% (up from 4.9% in Nov).

US Retail Sales

Also out this week will be US retail sales (expecting -0.1% in the month versus +0.3% in Nov) and the University of Michigan prelim consumer sentiment for Jan (expecting 70).

This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $23bn in new money. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – to settle next week.

Approx. $18.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.

Next Monday 17 Jan will be Martin Luther King Jr Holiday (US).

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.

The Macro Outlook for w/c 3 January 2022

by Kim | Jan 3, 2022

Key themes for the week ahead – FOMC Minutes, US Non-Farm Payrolls, and Dec PMI’s

In our last outlook note for 2021, we said that the trend of US data over the intervening FOMC meeting period will be important to the timing of the first US rate hike. This is especially relevant as inflation continues to trend above target and the economy continues to rebound from the pandemic.

To Recap – The last FOMC decision in Dec was in line with expectations for a faster taper and possible earlier liftoff in rates. Later, Governor Waller suggested that quantitative tightening (QT) might be under consideration and the Mar 2022 FOMC 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

Since our last note, PCE inflation for Nov came in higher than expected at 5.7% while Oct inflation was also revised higher. The continued high pace of the monthly PCE inflation (expecting +0.2% growth in Nov – actual +0.6%) will likely remain a concern. Uncertainty has also been elevated about the rapid spread of the new virus variant and the potential impact on the economy.

FOMC Minutes – The minutes of that last FOMC meeting will be released this week. The key points will be around the extent of the discussion for an earlier rates lift-off and QT.

US Non-Farm Payrolls – This week, the Dec US non-farm payrolls will be released. Unless there is a ‘severe disruption’ to either payrolls growth or the reduction in unemployment, the FOMC is likely to remain on target (at least) for an earlier end to taper. The growth in non-farm payrolls is expected to be +400k in Dec (prior actual +210k). The participation rate will also be a key data point – the Nov participation rate was 61.8% (16yrs+).

PMIs Dec – The final Dec Markit PMI’s will be released this week. The prelim Dec PMIs highlighted a general deceleration in momentum going into Dec 2021 – especially across Europe and UK services sectors. The US ISM PMI’s will be released this week. Momentum across services and manufacturing is expected to decelerate somewhat but remain elevated. Headline ISM manufacturing PMI (Dec) expected 60.4 (prior 61.1) and services PMI (Dec) expected 67.2 (prior 69.1). Prices, lead times, inventory, and demand will be key metrics.

This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $80bn in new money for the first week of Q12022.

Approx. $18.5bn 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.