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
