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.
