by Kim | Mar 28, 2022
Key themes for the week ahead – US non-farm payrolls, inflation data, and ongoing geopolitical headline risk
Recap from last week
In the week following the first US rate hike in this cycle, US Fed Chair Powell signaled that the FOMC is willing to be “more aggressive” in addressing inflation at coming meetings. In his NABE speech on Monday, Chair Powell noted that “inflation is much too high” and “raising the federal funds rate by more than 25bps” could be appropriate. Other Fed speeches throughout the week supported returning the federal funds rate to the ‘neutral rate’ as quickly as possible. Rates markets reacted strongly and are currently pricing multiple 50bps hikes over coming meetings starting in May. By the end of the week, the US yield curve flattened further (5-30’s) down to 5bps. At the time of writing, that curve comparison was slightly inverted.
The prelim Mar PMIs showed that input price inflation remains a key theme. Growth momentum was positive across the US and Australia. Aus private sector input and output price inflation “hit record rates”. Demand was boosted by the reopening of international travel. US output and demand increased at a faster pace while input costs increased at “one of the fastest rates on record” in the PMI survey. Firms notably increased output charges at a slower pace.
Growth momentum in Japan was lackluster, as manufacturing activity recorded no change and services activity contracted at a slower pace. Input and output prices increased at a faster pace.
Eurozone activity started to reflect disruption from the war in Ukraine. Growth was slower amid lengthening in supply lead-times while costs increased at “unprecedented rates”.
The week ahead
The focus for the weeks ahead is the path of inflation and the impact on growth/demand from inflation and the broader, ongoing removal of pandemic restrictions.
This week US non-farm payrolls for Mar are expected to increase by +475k (after increasing by +678k in Feb). The unemployment rate is expected to fall to 3.7% while the participation rate is expected to be unchanged at 62.3%.
The US PCE price index, the FOMC preferred measure of US consumer inflation, is expected to increase by +6.7% in Feb, up from +6.1% in Jan.
Other consumer inflation data: Germany’s CPI prelim for Mar is expected to increase by +6.1% after increasing by 5.1% in Feb. Monthly inflation is expected to reach +1.9% in Mar (from +0.9% in Feb). The broader Eurozone inflation data is also expected to show an acceleration in price growth to +6.5% in Mar from +5.9% in Feb.
The US ISM manufacturing PMI report for Mar is expected to show consistent growth momentum. The headline PMI is expected to remain unchanged at 58.6. Details on underlying pricing, lead times, and demand will be insightful.
We are alert to headline risks related to the invasion of Ukraine. Negotiating teams are expected to resume face-to-face talks this week.
The Federal budgets for the US and Australia will be handed down at the start of the week. A ‘cost of living adjustment’ cash payment is expected to be announced in the Aus budget while implementing measures to narrow the budget deficit.
This week, the US Treasury will auction and settle approx. $378bn in ST Bills, Notes, TIPS, and Bonds, raising approx. $72bn in new money.
Approx. $54bn 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 | Mar 28, 2022
Last week, global equities extended gains despite a continued sell-off in the bond markets. Bulls and bears are facing a decision with only 3 waves up from recent swing lows into layered resistance. Global risk markets are trying to digest strong inflationary headwinds, a resilient economy, strongly rising rates and global central bank tightening. The […]
by Kim | Mar 21, 2022
Key events for the week ahead – Geopolitical risks, US Fed Chair Powell speech, global prelim PMI’s for March
Recap from last week
The invasion of Ukraine continues unabated, and hopes are that a diplomatic resolution can be reached as soon as possible.
Commentary from central banks acknowledges that the invasion has added further uncertainty for growth while inflation risks are tilted to the upside (dependent on the path of sanctions and the invasion generally).
The US Federal Reserve has started its hiking cycle with a 25bps increase in the FFR. The assessment by the FOMC was that inflation is high and inflation risks are to the upside, the US economy is “very strong”, and the labour market is “extremely tight”. The SEP was important. The FOMC matched the market expectation for the number of rate hikes (increasing from three to six hikes for 2022) with the terminal FFR around 2.375% over the longer run – this is slightly lower than the Dec projection. The inflation forecast for 2022 was revised higher (than in Dec) and slows more notably in 2023 to 2.7% (still slightly higher than the Dec projection). Chair Powell noted that “inflation is likely to take longer to return to our price stability goal than previously expected”. Importantly, the higher inflation and ensuing hikes over 2022 resulted in a lower real GDP growth forecast for 2022 (from 4% forecast in Dec to 2.8% in the latest SEP). The growth forecast for 2023 is unchanged (from the Dec forecast) at 2.2%. The unemployment forecast was unchanged at 3.5% through 2022 and 2023. As previously mentioned, QT will be announced at an upcoming meeting. The US yield curve flattened sharply by the end of the week.
The BoE hiked its Bank Rate by another 25bps last week. UK CPI for Feb will be released this week and is expected to accelerate from 5.5% in Jan to 5.9% in Feb. Monthly CPI is expected to increase from -0.1% in Jan to +0.6% in Feb.
The BoJ left policy unchanged. The Japanese National CPI continued to edge higher with headline inflation reaching +0.9% in Feb (up from +0.5% in Jan) and core CPI (ex-fresh food) up +0.6% in Feb (from +0.2% in Jan).
A key point from the RBA minutes was that the Board now sees wages growth risks tilted to the upside – this could be a subtle but important shift. The Board has consistently said that it is too early to say that inflation is “sustainably in the range” – especially because wages growth had been lagging. This could be setting up for an official shift in the rates outlook (while markets are already pricing hikes to begin this year).
The week ahead
We are alert to headline risks related to the invasion of Ukraine. US President Biden will attend the emergency NATO summit on Thursday.
There will be many speeches by central bankers this week. Of note will be US Fed Chair Powell on Monday and Wednesday.
The prelim global PMIs will be released for Mar. These will give an early insight into any shifts in growth momentum. Of interest will be the Euro area economy. It may be too early to assess impacts from another round of lockdowns in China.
This week, the US Treasury will auction and settle approx. $276bn in ST Bills and FRN’s, raising approx. $7bn in new money. The US Treasury will auction the 10yr TIPS and 20yr Bond this week – both will settle next week.
Approx. $12bn 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 | Mar 21, 2022
Equity markets rebounded strongly last week after failing to make new cycle lows culminating in a bullish weekly reversal. Only the Nasdaq indices made marginal new lows, unconfirmed by the broader indices, sparking a strong short covering rally from the double bottom. Crude Oil and RBOB extended declines into impulsive 5 waves (change in trend) […]
by Kim | Mar 14, 2022
Key events for the week ahead – Geopolitical risks, central bank meetings – FOMC, BoE, and BoJ, RBA minutes, US retail sales
Recap from last week
The invasion of Ukraine continues to exact an enormous humanitarian toll. We hope for a swift end to this violence, but initial sanctions are yet to change the course of this tragedy. Markets have been focused on headline risks as sanctions led to further surges in commodity and energy prices.
The ECB meeting last week remained focused on the rising risk of inflation. The ECB announced a faster taper of its core QE program (APP). The end of the program will be determined around the end of Q2, dependent on ‘strengthening inflation’ through Q2. The potentially earlier ending of the APP provides the ECB with the optionality to act earlier on rates. The ECB increased its inflation forecast notably for 2022.
US CPI came in as expected at +7.9% for Feb, accelerating from +7.5% growth in Jan. The contributors to the acceleration remained broad. Inflation is likely to remain a risk considering higher ag/commodity and energy prices. Add also the possibility of further supply chain disruptions as China locks down an important industrial center amid a another covid outbreak.
The week ahead
Central bank communications will be an important theme. The geopolitical situation has added greater uncertainty for the tightening path and central banks will need to balance the risks to growth from the invasion and sanctions with rising/elevated inflation and price stability mandates.
The FOMC is expected to increase the FFR target by 25bps this week. On QT, Chair Powell recently testified that “the plan to shrink the balance sheet will not be finalized at this meeting”. The new SEP will be of interest to understand changes to the path of rates since the Dec meeting. Chair Powell has already noted in testimony that the Fed will “proceed but will proceed carefully” given heightened uncertainty. Commentary on inflation will be important.
The BoE will meet this week. Another 25bps increase in the Bank Rate is expected as inflation remains elevated. The BoJ will also meet this week – and no change to policy is expected. The National CPI for Japan will be released this week and higher energy prices are expected to impact the headline number.
US retail sales growth for Feb is expected to ease to +0.4% for the month after increasing by +3.8% in Jan.
The RBA minutes of the Mar meeting will be released this week. Minutes are likely to reflect that the RBA can be patient on rate increases despite inflation risks moving to the upside. Key points: persistence of supply shocks, including from Ukraine invasion, and wages growth. The Aus labour market and employment survey for Feb will be released this week. Employment is expected to increase by +40k, the participation rate to increase to 66.3%, and the unemployment rate to fall to 4.1%.
This week, the US Treasury will auction and settle approx. $328bn in ST Bills, Notes, and Bonds, raising approx. $75bn in new money.
Approx. $34bn 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
