by Kim | Feb 28, 2022
Key themes for the week ahead – Geopolitical risk, central bank decisions, US Fed Chair Powell testimony, US Fed speeches, US President Biden State of the Union speech, US non-farm payrolls
Recap from last week
Fed speak last week continued to discount the likelihood of a 50bps increase in the FFR in Mar. US PCE inflation continued to accelerate reaching +6.1% in Jan – a forty-year high. For context, the FOMC SEP for Dec had PCE inflation reaching +5.3% by the end of 2021. This further acceleration will keep pressure on the FOMC to adjust policy. The initial global PMIs for Feb showed a stronger rebound across services. Manufacturing output and momentum was little changed from the pace of growth in Jan, as firms cited ongoing input and labour shortages. The outlier was Japan recording a contraction across services and manufacturing output. Price growth remained higher across all sectors with both input and output charges increasing at an elevated pace.
The week ahead
The broad context for this week is the ongoing and heightened geopolitical risk. We expect this to introduce a cautious tone into central bank speeches and decisions this week.
This week, US Fed Chair Powell will give two days of testimony and there will be various Fed speakers. Last week, speeches were already indicating less aggressive tightening for Mar (+25bps rather than 50bps). Signaling by the Fed Chair this week at hearings will need to navigate a balance for policy to address persistently high inflation and the risk that rising geopolitical tensions will impact growth. In the current context, the more extreme tightening scenarios seem less likely for Mar. The Fed will highlight the importance of ‘data dependency’ during this heightened period of risk.
The RBA and BoC will announce the latest monetary policy decisions this week. The RBA is expected to keep rates on hold. The Aus wage price index data last week was on par with expectations and RBA forecasts. This is likely not enough to support an earlier (Jun) lift-off in tightening – but the RBA Board will provide updated guidance this week. After the RBA meeting, Aus Q4 GDP will be released and is expected to increase by +2.5% for the quarter and +3% for the year.
The BoC is expected to lift rates by 25bps at this meeting.
US President Biden will give the State of The Union speech this week. Any change to the nature of sanctions on Russia will be an important theme (e.g., by including energy).
US non-farm payrolls will be released this week for Feb. Payrolls are expected to increase by +450k after increasing by +467k in Jan. The unemployment rate is expected to fall to 3.9% while the participation rate is also expected to fall slightly to 62%.
This week, the US Treasury will auction and settle approx. $409bn in ST Bills, Notes, Bonds, and TIPS, raising approx. $92bn in new money.
Approx. $51bn in ST Bills, Notes, and 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 | Feb 28, 2022
Last week saw wild swings in the markets as Russia launched an invasion on Ukraine. We have been warning of two-way risks in this market with "headline risks" as NEWS has become the signal. Bulls and bears continue to fight it out at the END of a primary trend. Putin is playing poker with the […]
by Kim | Feb 21, 2022
Key themes for the week ahead – US PCE Inflation data, Fed speak, and continued geopolitical headline risk
Recap from last week
We noted last week that ‘fed speak’ would be prominent in the lead-up to the next FOMC meeting. Over the next three weeks, the question remains: is the Fed preparing markets for more or less aggressive tightening?
The FOMC minutes noted that members “expected” that it would soon be appropriate to raise the target range. The probability of a Mar rate lift-off looks likely. Several members had favoured ending QE earlier than Mar to signal a stronger commitment to bringing down inflation – this did not happen. Inflation risks were seen as tilted to the upside. QT: “conditions would likely warrant” beginning to reduce the size of the balance sheet “sometime later this year”. Also noted was that “if inflation does not move down as expected, it would be appropriate for the committee to remove accommodation at a faster pace than they currently anticipate”.
Coming into last week, markets were pricing the possibility of a 50bps increase at the Mar meeting after the Jan CPI. Speeches through the week have dampened that idea for the moment – citing the risk of unduly tightening financial conditions. At the very least, markets are expecting a 25bps increase in the FFR target range at the Mar meeting. This is still a fluid situation and US inflation data this week will be another important input for the Mar meeting.
US data remained solid last week – especially the Jan retail sales result led by non-store and motor vehicle sales (although Dec was revised lower). US PPI also surprised to the upside (with little impact on markets).
The week ahead
Geopolitical headline risk remains heightened.
Fed speak will continue with FOMC members Governor Waller, Cleveland President Mester, and Governor Bowman speaking this week.
US PCE inflation data will be released this week – the FOMC preferred measure of inflation. Headline PCE inflation is expected to increase by +5.5% in Jan from +5.8% in Dec. Monthly PCE inflation is also expected to ease to +0.3% from +0.4% in Dec.
The global prelim PMIs for Feb will be released this week providing insight into the rebound in global growth.
The RBNZ will also meet this week and is expected to increase the official cash rate by 25bps to 1%.
The Aussie Wage Price Index for Q4 is expected to increase by +0.7% QoQ/+2.4% YoY. This would be above current RBA forecasts of +2.25% YoY. This will be an important data point for the RBA as it looks for evidence of a higher trend in wage and inflation growth over the next several quarterly wage and CPI releases as it considers the case for earlier rate hikes.
This week, the US Treasury will auction and settle approx. $297bn in ST Bills and 2-year FRN, raising approx. $28bn in new money. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes this week which will settle on 28 Feb.
Approx. $21bn 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 | Feb 21, 2022
Global markets remain uncertain and difficult to trade with ongoing headline risk. Our base case remains that global equity indices are in larger degree 4th wave corrections prior to a FINAL wave 5 of (5) to new ATH's. The downside risk is that wave 5 of (5) of V is actually complete and the market […]
by Kim | Feb 14, 2022
Key themes for the week ahead – FOMC minutes, Fed speak, US retail sales, global CPI’s, and geopolitical risk
Recap from last week
US CPI for Jan came in higher than expected at 7.5%. The report showed that price growth pressure has continued to broaden among consumer expenditure categories.
That CPI print was pivotal in spurring further tightening expectations. Rates shifted higher and the yield curve flattened to a new YTD low as rate hike expectations reflected more aggressive tightening required by the Fed (50bps hike for Mar and hikes expected at most meetings this year). There is a sense of urgency, especially politically, to fix the inflation problem. The prelim consumer sentiment for Feb was much weaker than expected and fell to the lowest level in over ten years, due mostly to the expected impact of inflation on personal finances. Whether this weaker sentiment impacts spending will be important.
The week ahead
The FOMC doesn’t meet again until 16 Mar – in four weeks’ time. There were calls last week for the Fed to take immediate action with an ‘emergency’ rate hike before the Mar meeting. In the absence of any inter-meeting action, Fed-speak will fill the vacuum over next four weeks. So far, Bullard supports at least three hikes before July including a 50bps hike, while Daly (not an FOMC member) pushed back on expectations for more, and aggressive hikes, citing the destabilizing effect it might have. Five (5) of eight (8) FOMC members will speak this week, likely expressing a full range of policy options. The Jan FOMC Minutes will be out this week and commentary is expected to support expectations for hikes starting in Mar.
The Feb RBA minutes will be released this week. The detail around Governor Lowes outlook was delivered separately in his speech the day after that RBA meeting. The minutes are likely to reiterate that the Board is willing to be patient on rate hikes. Markets are starting to price the first interest rate hike for Aug. The Aus labour market survey for Jan will be out this week and employment is expected to contract by -15k persons amid the peak of the latest outbreak. The unemployment rate is expected to remain unchanged at 4.2%.
US retail sales for Jan are expected to increase by +1.6% after falling -1.9% in Dec.
CPI reports for the UK (expecting +5.4%), Canada (+4.8%), Japan (+0.6%), and China (+1%) will be released this week.
Uncertainty is heightened over the Russia-Ukraine situation with significant headline risk.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds raising approx. $81bn in new money. The US Treasury will also auction the 20yr Bond and 30-year TIPS this week which will settle on 28 Feb.
Approx. $86bn in ST Bills, Notes, and 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.
